Dah Sing, Bank of East Asia Surge After Investor Seeks BEA Sale

  • Billionaire Paul Singer's hedge fund ignites rally with letter
  • Shares of Dah Sing jump the most in more than seven years

Dah Sing Financial Holdings Ltd.surged along with Bank of East Asia Ltd., the only other owner of a listed independent Hong Kong bank, one day after BEA’s fourth-largest shareholder urged the board to explore a sale.

Shares of Dah Sing jumped 12 percent Friday, to HK$42.45, the biggest one-day gain since September 2008, after Reuters reported Country Garden Holdings Co. and China Life Insurance Co. flagged interest in its $1 billion insurance asset. BEA rose 5.5 percent, to HK$23, capping a 9.8 percent rally from Thursday, for its biggest two-day gain in more than four years. The benchmark Hang Seng Index rose 0.6 percent Friday.

“Investors are expecting more M&A activity in the financial industry going forward,” said Edmond Law, a Hong Kong-based analyst with UOB-Kay Hian Holdings Ltd. “They are excited to see Dah Sing Financial getting interest from some big companies for its insurance unit because it’s indeed not cheap.”

Interest in BEA, co-founded by the family of Chairman David Li, was stirred by a letter from Elliott Management Management Corp., run by billionaire Paul Singer, that urged fellow stockholders to demand the board explore a sale of the company “at an appropriate premium.” The New York-based hedge fund holds a 7 percent stake in the bank, the fourth-largest holding. The letter said sales of Hong Kong banks have been priced at an average of 2 times book value, which for BEA would equal about HK$60 ($7.70) a share, Elliott said in the letter.

Biggest Shareholder

Elliott’s letter comes after a Hong Kong court in June ruled in favor of the hedge-fund firm’s requests for documents concerning BEA’s sale of HK$6.6 billion of its shares to Sumitomo Mitsui Banking Corp., a unit of Sumitomo Mitsui Financial Group Inc., in 2014. SMBC, the largest shareholder of BEA, owns 17.4 percent of the Hong Kong bank, while Criteria Caixa SA has a 17.2 percent stake.

The letter “indeed gives pressure to the board, but the chance is slim to none” for a sale, said Ronald Wan, chief executive officer at Partners Capital International in Hong Kong.

BEA, trading at a price-to-book ratio of 0.77 times, was the second-worst performer in the Hang Seng Finance Index this year through Wednesday, the day before Elliott sent its letter. It fell 27 percent.

Analyst Ratings

Before Elliott urged publicly that BEA should seek a sale of the company, Criteria Caixa had been released from an earlier obligation to back the Hong Kong lender’s board on any takeover bids it received, according to an announcement in January. Yet analysts aren’t rating the stock as if an acquisition was on the horizon.

None of the 15 analysts tracked by Bloomberg who follow BEA have buy ratings on the stock. Eight recommend investors sell and the rest rate it a hold, giving BEA a consensus rating of 1.93 out of 5, the least among the Bloomberg Asia Pacific Banks Index’s 56 members. China exposure prompted Goldman Sachs Group Inc. to reiterate its long-standing sell rating on BEA stock last month.

The bank’s nonperforming-loan ratio in China more than tripled to 2.65 percent by June from a year earlier, higher than the 1.5 percent average for the nation’s banks the same month. Brian Li, BEA’s deputy chief executive officer, said in a September interview that the bank will take action on its China business that is “dragging down our overall performance.”

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