OCBC Said in Talks for All-Debt Financing for Wing Hang Deal

Oversea-Chinese Banking Corp. is in talks with lenders including Bank of America Corp. and HSBC Holdings Plc about an all-debt financing for its acquisition of Hong Kong’s Wing Hang Bank Ltd., according to two people with knowledge of the matter.

Singapore-based OCBC plans to sell stock later to help repay the short-term loan, said the people, who asked not to be identified because the discussions are private. Talks between the companies are centering around a valuation of almost 1.9 times Wing Hang’s book value, though no terms have been finalized, one person said.

At that valuation, OCBC would pay almost HK$39 billion ($5 billion) for Wing Hang based on the Hong Kong family lender’s book value as of June 30, data compiled by Bloomberg show. OCBC said Jan. 6 it was in exclusive talks with Wing Hang’s biggest shareholders to buy the bank in what would be its largest acquisition, surpassing the $2.8 billion OCBC paid in 2001 for Keppel Capital Holdings Ltd.

Wing Hang shares fell 2.1 percent as of 1:26 p.m. in Hong Kong, the steepest decline in a month, giving it a price-to-book multiple of 1.72. OCBC trades at 1.52 times after advancing 0.2 percent in Singapore today.

Spokesmen at Bank of America, HSBC, Wing Hang and OCBC declined to comment on the financing details.

Price Concerns

OCBC, which gets about two-thirds of its revenue from Singapore, is stepping up overseas expansion plans as it seeks to offset the thinnest lending margins in Southeast Asia. The Singaporean lender has 16 branches in China, one in Taiwan and one in Hong Kong, Chief Financial Officer Darren Tan said last week. Wing Hang has 70 branches in Hong Kong, Macau and mainland China.

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 shares on Jan. 9 fell to the lowest in almost a year on concern it would overpay for Wing Hang. Larger Singaporean competitor DBS Group Holdings Ltd. in 2001 bought Hong Kong’s Dao Heng Bank Ltd. for $5.4 billion, an acquisition that cost it at least S$2.1 billion ($1.7 billion) in writedowns. DBS paid 3.3 times book value for Dao Heng.

UBS analysts Stephen Andrews and Khairul Rifaie in a note dated Jan. 6 estimated that a Wing Hang acquisition carried out at 1.75 times book value would dilute OCBC earnings by about 5 percent and require a “sizeable capital raising.”

Singapore boasts some of the world’s strongest banks, based on their equity capital ratios. OCBC had a common equity Tier 1 capital ratio of 14.3 percent as of Sept. 30, more than triple the minimum regulatory environment. It finished the third quarter with S$14.5 billion of cash and equivalents, data compiled by Bloomberg show.

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