Singapore-based OCBC conducted due diligence and offered less than the two times book value Wing Hang was seeking, said the people, who asked not to be identified as the information is private. The companies are discussing if they can bridge the valuation gap, the people said. The Hong Kong bank has a market value of $4.6 billion, which is 1.7 times its estimated 2013 book value, data compiled by Bloomberg show.
Buying Wing Hang would be OCBC’s biggest acquisition. The Singaporean bank, which gets almost two-thirds of its revenue from its home country, is stepping up overseas expansion plans as it seeks to offset the lowest lending margins in Southeast Asia.
Hong Kong’s family-run banks, squeezed for years by larger competitors including HSBC Holdings Plc (HSBA) and Bank of China Ltd., are attracting interest from acquirers as the city’s role in cross-border financing expands. Yue Xiu Group agreed in November to buy a majority stake in Chong Hing Bank Ltd. for $1.5 billion, the first acquisition of a Hong Kong lender since 2009.
The family of Wing Hang Chairman Patrick Fung, its affiliates and Bank of New York Mellon Corp. together hold about 45 percent of shares in the Hong Kong lender. OCBC declined to comment in an emailed reply to questions. Connie Leung, a Hong Kong-based spokeswoman for Wing Hang, declined to comment.
OCBC, led by Chief Executive Officer Samuel Tsien, has been expanding in Malaysia, Indonesia and greater China. The Singaporean lender would need fresh capital to acquire Wing Hang and would likely seek full ownership, Citigroup Inc. analyst Robert Kong wrote in an October report.
Banks in Singapore have an average net interest margin of 1.77 percent, according to data compiled by Bloomberg. While that’s higher than Hong Kong’s 1.73 percent, the Chinese city is seen by lenders as a gateway to the mainland and a way to benefit from increasing global use of the yuan.
Wing Hang would give a buyer a network of 70 branches spanning Hong Kong, Macau and mainland China. Its presence across southern China’s Pearl River Delta makes it a more attractive target than other smaller family-owned banks in the city, Grace Wu, an analyst at Daiwa Capital Markets Hong Kong Ltd., said by phone Sept. 17.
Anbang Insurance Group, a Beijing-based insurer, indicated it won’t pay more than 1.7 times the book value of Wing Hang, two people with knowledge of the matter said last month. Anbang said today in a filing it spent 1.43 billion yuan ($237 million) to increase its stake in China Merchants Bank Co. (600036) to 7 percent, from 6.36 percent.
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