Yue Xiu Said to Consider Takeover Bid for Chong Hing

Yue Xiu Group, a trading arm of China’s Guangzhou city government, is considering a bid for Hong Kong family-run lender Chong Hing Bank Ltd., according to a person familiar with the matter.

Talks are at an early stage and Yue Xiu is arranging financing for an acquisition, said the person, who didn’t disclose the size of the stake and asked not to be identified because discussions are confidential. The founding Liu family had about 60 percent at the end of December, according to Chong Hing’s annual report. That was valued at about HK$5.86 billion ($755 million) yesterday, data compiled by Bloomberg show.

Chong Hing Chief Executive Officer Lau Wai-man said in March that the lender was open to proposals from prospective buyers for all or part of the bank. Takeover speculation has mounted since November, when Lau became the first CEO from outside the Liu family. The shares rallied 38 percent this year.

“This would suggest that the interest in Hong Kong banks could also be coming from mainland conglomerates instead of mainland financial institutions only,” Grace Wu, an analyst at Daiwa Capital Markets Hong Kong Ltd., said by phone yesterday. “Cross-border financing is the key growth driver for Hong Kong banks in the next few years. Getting a mainland partner will be good for mid-cap banks.”

An independent third party has approached the controlling shareholder of Liu Chong Hing Investment Ltd. about the possible purchase of interests in Chong Hing Bank, the parent company and the lender said in a joint statement yesterday. The companies didn’t identify the potential buyer.

No Agreement

The controlling shareholder and Liu Chong Hing haven’t yet entered into any agreements with the potential buyer and will make further announcements as necessary, according to the statement. Liu Chong Hing holds a 50.2 percent stake in Chong Hing Bank, according to the lender’s 2012 annual report.

The shares of Liu Chong Hing and Chong Hing Bank, suspended yesterday, will resume trading today, according to the filing.

First-half net income at Chong Hing, the smallest of Hong Kong’s four family-run banks, rose 6.4 percent from a year earlier to HK$276 million, the bank said in a filing yesterday.

Dah Sing Banking Group Ltd., the second-smallest family-run bank in Hong Kong, jumped 14 percent, the most since its 2004 initial public offering, to close at HK$11.24 in Hong Kong trading yesterday. Bank of East Asia Ltd., the largest family-run bank in Hong Kong, rose 0.3 percent. Wing Hang Bank Ltd. gained 4.8 percent, the most in more than a year, to HK$78.65.

Family Banks

The number of publicly traded family-run banks in Hong Kong has fallen to four from six more than a decade ago after the industry drew buyers including China Merchants Bank Co., which paid $4.7 billion in 2009 for the Wu family’s Wing Lung Bank Ltd.

Chong Hing is trading at 1.3 times its book value, data compiled by Bloomberg show. That compared with 1.1 times at Bank of East Asia.

The lender, founded in 1948 by Liu Po-shan, dropped the Liu family name from Liu Chong Hing Bank Ltd. in December 2006 to “more accurately reflect the public nature of the bank,” according to its website. Lau replaced Liu Lit-chi, a member of the founding family who spent more than 50 years at the bank.

The Hong Kong Economic Journal, which reported the talks earlier, said Yue Xiu is eyeing the stake held by the Liu family.

(Corrects date of earnings announcement in eighth paragraph.)
Before it's here, it's on the Bloomberg Terminal.