OCBC’s $5 Billion Wing Hang Bid Seen Fair by Aberdeen Asset

Oversea-Chinese Banking Corp.’s $5 billion offer for Hong Kong’s Wing Hang Bank Ltd. seems “fair on both sides,” according to Aberdeen Asset Management Plc, which owns at least 7 percent of both companies.

OCBC’s strategy to expand its business in Greater China “seems sensible,” Hugh Young, a Singapore-based managing director at Aberdeen Asset, said by phone today. “We’re fairly relaxed about the whole thing. Only time will tell whether it’s a good deal.”

Southeast Asia’s second-largest lender offered HK$38.4 billion ($5 billion) yesterday for Wing Hang, the largest takeover of a Hong Kong bank in 13 years. The purchase would allow the Singaporean bank more access to China-related business in the biggest center for offshore yuan trading.

Young declined to comment on whether Aberdeen, Europe’s largest publicly traded money manager, will accept OCBC’s offer. The Singaporean lender already agreed to buy shares amounting to a 2.5 percent stake in Wing Hang from Aberdeen, OCBC said yesterday. Aberdeen owned 7 percent in the Hong Kong bank as of March 26, according to a filing to the city’s Securities & Futures Commission.

The family of Wing Hang’s Chairman Patrick Fung, Bank of New York Mellon Corp. and other investors holding a combined 50.66 percent of the bank have accepted the offer, according to yesterday’s statement. OCBC’s offer of HK$125 for each Wing Hang share was a 1.6 percent premium to the stock’s last traded price on March 28 before a trading halt.

Bid Valuations

Wing Hang Bank’s investors will be entitled to a dividend of as much as 46 Hong Kong cents per share if the takeover is approved by stockholders, according to yesterday’s statement.

The bid valued Wing Hang at 1.77 times its book value as of Dec. 31 and almost 2 times its net tangible assets, according to figures supplied in the statement. OCBC itself trades for 1.4 times book, data compiled by Bloomberg show.

At 2 times net tangible assets, the offer’s valuation premium was “difficult to justify,” Anand Swaminathan, a Singapore-based analyst at Credit Suisse Group AG, wrote in a report dated today. OCBC will need to sell at least S$2.5 billion ($2 billion) of shares to fund the deal, he said.

“Potential dilution risk from equity raising is a near-term overhang” for OCBC’s stock, Swaminathan wrote. He cut his share-price target to S$9.30 from S$10.20 and maintained his underperform recommendation.

Share Sale

OCBC shares rose 0.6 percent to S$9.62 as of 11:45 a.m. in Singapore, while Wing Hang gained 0.4 percent to HK$123.70. The Hong Kong lender’s stock surged 49 percent in the year through last week.

The offer will be funded by a combination of debt and equity, OCBC Chief Executive Officer Samuel Tsien told reporters in Singapore yesterday. The amount of stock to be sold will be determined after the completion of the deal, Chief Financial Officer Darren Tan said at the same briefing.

Aberdeen’s Young said his firm will decide whether it will subscribe once OCBC announces details of the fund raising. The fund manager held 7.7 percent of OCBC’s shares as of March 6, according to filings compiled by Bloomberg.

Shares of Aberdeen surged 6.7 percent in London yesterday, the most since Nov. 18, as the company said it lured 1.2 billion pounds ($2 billion) in new funds last month. The firm had about $310 billion of assets at the end of February, according to its website.

Overseas Buyers

OCBC secured preliminary approval from the Hong Kong Monetary Authority for the acquisition, people familiar with the matter said on March 28, leading to an 8.9 percent surge in Wing Hang shares before trading was halted that day. The Singaporean bank entered exclusive talks with Wing Hang’s largest shareholders last year.

Hong Kong lenders are luring overseas buyers seeking to tap the Chinese market as the yuan becomes more widely used for finance. Outstanding loans in Hong Kong made in China’s currency surged 46 percent last year to 115.6 billion yuan ($18.6 billion), HKMA data show. Sales of yuan-denominated debt securities, known as Dim Sum bonds, rose 27 percent.

Wing Hang gives OCBC a network of about 70 branches spanning Hong Kong, Macau and mainland China. Its presence across southern China’s Pearl River Delta makes it a more attractive target than other smaller family-owned banks in the city, Grace Wu, an analyst at Daiwa Capital Markets Hong Kong Ltd., said by phone on Sept. 17.

‘Meaningful Foothold’

OCBC expects the purchase to add to per-share earnings and return on equity by 2017, the bank said yesterday. Before taking into account any external funding, the takeover will lower OCBC’s common equity Tier 1 capital adequacy ratio to 11 percent from 14.5 percent, the lender said.

The takeover would be the largest of a Hong Kong bank since DBS Group Holdings Ltd., OCBC’s largest competitor in Singapore, offered $5.3 billion for Dao Heng Bank Group Ltd. in April 2001.

“We believe the acquisition gives OCBC a meaningful foothold in the key Hong Kong and mainland China market and makes the bank more competitive with DBS,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, wrote in a report today. “The logic of the deal is clear.”

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