Cinda Banking Ambitions Carry Costly Price Tag for Investors

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China Cinda Asset Management Co.’s ambition to transform itself into a bank is turning out to be a costly one for shareholders.

Cinda shares fell to a record low Thursday after it said it bid for Hong Kong lender Nanyang Commercial Bank Ltd. The state-owned asset manager will pay almost $9 billion, according to people with knowledge of the matter -- a valuation that’s more than double the average of the city’s listed banks. The seller, BOC Hong Kong Holdings Ltd., is also government-controlled and its chairman previously held the same role at Cinda.

Cinda would join a list of companies that have bought Hong Kong banks at valuations questioned by investors and analysts alike. One thing that makes Cinda’s effort stand out is that it comes just as Chinese equities have been battered over concerns the world’s second-largest economy is slowing.

“This is an expensive deal given the poor economic situation now,” said Alex Wong, a Hong Kong-based asset-management director at Ample Capital Ltd. “Investors don’t like the deal as there’s no strong rationale.”

The $8.8 billion minimum asking price for Nanyang Commercial works out to 1.95 times its book value at the end of 2014. Hong Kong-based lenders trade at an average 0.97 times book, data compiled by Bloomberg show.

Painful Memories

The deal for Nanyang Commercial, whose valuation rose since the start of the sale process in March, stirs memories of other expensive Hong Kong bank takeovers. DBS Group Holdings Ltd., Southeast Asia’s largest lender, took impairment charges of at least S$2.1 billion ($1.5 billion) following its $5.4 billion purchase of Dao Heng Bank Ltd. in 2001.

Thursday’s share price slide capped a record nine-day losing streak for Cinda that shaved $2.9 billion off its market value. The stock recovered 3.2 percent to HK$2.93 as of 2:07 p.m. Friday in Hong Kong.

“The numbers do not work,” said Jim Antos, an analyst at Mizuho Securities Asia Ltd. in Hong Kong. “This is an SOE helping another SOE,” he said, using an abbreviation for state-owned enterprise.

Cinda, which had 544.4 billion yuan ($85 billion) of total assets at the end of last year, was created in 1999 to buy bad debts from state-owned Chinese banks on the verge of insolvency. It has been expanding to offer other financial services including fund management, insurance, leasing and securities broking.

‘Appropriate’ Price

The Beijing-based company plans to cross-sell its other financial products through Nanyang Commercial’s branch network, two of the people said. Nanyang Commercial has almost as many outlets in China as it does in Hong Kong and Cinda aims to complete the purchase by the end of the year.

The acquisition price is “appropriate” based on the two companies’ synergies and Cinda’s understanding of the banking industry, Chen Xiaozhou, a senior executive at Cinda, said at a press briefing Friday in Hong Kong.

“We don’t have a platform for our clients’ daily financial-service needs after they have settled their bad-loan problems,” Chen said. “Having a bank will allow us to do that.”

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