Yue Xiu Group bid HK$11.6 billion ($1.5 billion) for 75 percent of Chong Hing Bank Ltd. (1111), seeking a foothold in Hong Kong as the banking hub’s role in cross-border financing expands.
Yue Xiu, a trading arm for the government of the southern Chinese city of Guangzhou, is offering HK$35.69 for each of the 326.25 million Chong Hing shares it’s seeking, according to a joint statement yesterday. That’s a 4.6 percent discount to the stock’s last price on Oct. 23 before a trading suspension. The bank’s founding Liu family will offer a stake equal to about 51 percent of the company, according to the statement.
The first acquisition of a Hong Kong lender since 2009 will give Yue Xiu a network of 53 branches and help its units seek funding outside mainland China. Chong Hing, which named Lau Wai-man as the first chief executive officer from outside the Liu family last year, said in August it had been approached by prospective bidders.
“Yue Xiu’s subsidiaries have business relations with Chong Hing or will become Chong Hing’s customers in the future,” Steven Chan, a Hong Kong-based banking analyst at Maybank Kim Eng Securities Pte, said by phone today. “Chong Hing may also help Yue Xiu develop cross-border yuan business.”
The Chinese firm needs approval from the Hong Kong Monetary Authority for its Chong Hing offer, the bidder said in the statement. Yue Xiu said it intends to keep the lender’s stock exchange listing.
Chong Hing shares did not trade on Oct. 24-25 pending an announcement on an acquisition, after Bloomberg News reported the bank was nearing a deal with Yue Xiu. The stock, which has jumped more than 170 percent in Hong Kong since Lau’s appointment was announced Nov. 28, will resume trading Oct. 28.
Chong Hing Bank will sell its headquarters on Des Voeux Road in Hong Kong’s city center to the family’s Liu Chong Hing Investment Ltd. (194), the current parent company, for HK$2.23 billion, according to the statement. Chong Hing Bank will distribute the proceeds as a special dividend of HK$4.5195 a share.
Hong Kong’s role as an international center for trade in the yuan has attracted Chinese financial institutions seeking to expand abroad, including China Merchants Bank Co., which paid $4.7 billion for the Wu family’s Wing Lung Bank Ltd. in a deal completed in 2009.
The increasing integration of Chinese and Hong Kong firms was driven by increased cooperation between the city and the mainland’s economy, the internationalization of China’s currency and Hong Kong’s development as an offshore yuan center, Yue Xiu said in a section in yesterday’s statement explaining the reasons for its offer.
Yue Xiu Group, founded in 1985 by Guangzhou as a trading company for Hong Kong and Macau, operates in businesses including real estate, securities and transportation infrastructure.
Outstanding loans in Hong Kong denominated in the mainland’s currency surged to 115.4 billion yuan ($19 billion) in August from 1.8 billion yuan in 2010, HKMA data show. Yuan-denominated debt securities, known as Dim Sum bonds, jumped to 294 billion yuan at the end of June from 55.8 billion yuan in 2010.
Chong Hing, founded in 1948 as Liu Chong Hing Bank Ltd., dropped the family name in December 2006 to “more accurately reflect the public nature of the bank,” according to its website. Lau replaced Liu Lit-chi, a family member who had spent more than 50 years at the bank.
Chong Hing’s network of 51 branches in Hong Kong compares with more than 260 at BOC Hong Kong Holdings Ltd., the Bank of China Ltd. unit that’s the biggest local lender. Chong Hing also has one branch each in Macau and mainland China.
The number of publicly traded family-run banks in Hong Kong has fallen to four from six more than a decade ago after China Merchants bought Wing Lung and Public Bank Bhd. of Malaysia took over Asia Commercial Bank. In addition to Chong Hing, Bank of East Asia Ltd., Dah Sing Banking Group Ltd. (2356) and Wing Hang Bank Ltd. (302) are the family lenders.
Wing Hang’s stock has surged 37 percent in Hong Kong trading since Sept. 16, when the bank said its largest shareholders were in talks to sell their shares. The Fung family, its affiliates and Bank of New York Mellon Corp. together own about 45 percent of the company.
Oversea-Chinese Banking Corp. (OCBC), Southeast Asia’s second-largest lender, is considering a bid for Wing Hang, people familiar with the matter said Oct. 24. Singapore-based OCBC had been studying an offer for the Hong Kong bank for more than two weeks, one of the people said.
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