Elliott Ramps Up Pressure on Bank of East Asia in Lawsuit

  • ‘Serious corporate governance failings’ alleged by Elliott
  • BEA calls legal action a “self serving” effort to distract

Billionaire Paul Singer’s Elliott Management escalated its battle against Bank of East Asia Ltd., asking a Hong Kong court to declare that the bank acted improperly when issuing shares that diluted minority shareholders and allegedly entrenched management control.

The petition alleges “unfairly prejudicial conduct” by directors and “serious corporate governance failings,” the activist hedge fund said in a statement Monday. The action, which names directors including Chairman David Li, is “self serving and calculated to distract the management team” and will be vigorously opposed, Li, 77, said in a statement.

The first hearing will be on Sept. 21, according to BEA. The lender’s shares fell 1.6 percent as of 11:41 a.m. in Hong Kong, more than the 0.6 percent decline in the Hang Seng Index.

David Li
David Li
Photogrpaher: Xaume Olleros/Bloomberg

Elliott seeks rulings including that board resolutions connected with the lender’s placement of new shares to Japan’s Sumitomo Mitsui Banking Corp., completed in March last year, were “passed for an improper purpose.” The fund also asks the court to release Sumitomo Mitsui Banking and Criteria Caixa SA -- the parent of Spain’s CaixaBank -- from any undertakings that restrict them from boosting or cutting their stakes.

The latest legal missive steps up the spat between Elliott and the Li family. Elliott has called for BEA to explore a sale of itself, and voiced concerns about Li’s re-election and the board’s mandate to sell shares ahead of the April annual meeting.

BEA is one of only two remaining independent banks listed in Hong Kong after three were purchased since 2013. It’s a “prime takeover target,” Elliott said in the legal filing, alleging that the defensive moves by the Li family had “increasingly reduced the ability of the independent shareholders to influence or change the management of the company or accept a takeover offer which is not recommended by the board.”

Five Sales

Elliott’s opposition to the general mandate stems from five share sales by BEA since 2007 that have made friendly shareholders Sumitomo Mitsui Banking and Criteria Caixa the lender’s largest investors, insulating Li from activists’ demands. The share placements have increased BEA’s number of shares by about 37 percent since 2007.

The investors and the Li family own a combined 45 percent of BEA’s voting shares, according to the court filing. Elliott owns about 7.1 percent of the ordinary shares, the filing shows.

Elliott or affiliated entities have held BEA shares since July 15, 2010, according to the filing, when the bank’s shares closed at HK$28.95. The shares have gained 9.5 percent between then and yesterday, outperforming an 8 percent loss in the Hang Seng Finance Index.

Singer’s Elliott, which manages more than $28 billion in assets, has been embroiled in bitter disputes before. Earlier this year, the hedge fund prevailed against Argentina in an accord that calls for the country, which defaulted on sovereign bonds, to pay $4.65 billion in cash to Elliott and other funds.

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