Bank of East Asia Should Explore Sale, Investor Elliott Says

  • Owner of fourth-biggest stake asks shareholders to press board
  • Hedge fund run by billionaire Paul Singer releases letter

Elliott Management Corp., the hedge fund run by billionaire Paul Singer and fourth-largest shareholder of Bank of East Asia Ltd., urged the lender to explore a sale of the company "at an appropriate premium.”

The fund, which holds a 7 percent stake in the Hong Kong-based bank, made its case in a letter to fellow stockholders in which it blamed an “entrenched executive management” for mismanaging the business.

“We urge all shareholders, large and small, to also call on the BEA board to act now, to provide all shareholders with an opportunity to earn a meaningful return on their investment in BEA, through a sale,” a spokesman for the New York-based fund, said in an e-mailed statement accompanying the letter.

Historic sales of Hong Kong banks have been priced at an average of 2 times book value, which for BEA, co-founded by the family of Chairman David Li, would equal about HK$60 ($7.70) a share, Elliott said in the letter. The bank’s shares rose 4.1 percent, the most since Jan. 22, to close Thursday at HK$21.80. A day earlier, the stock fell to its lowest since May 2009.

Elliott’s position appears very short-term focused and doesn’t take into account the long-term business that the bank is building, a BEA spokesman said in an e-mailed statement. The actions “demonstrate self-interest rather than the best interests of all shareholders,” the spokesman said.

In June, a Hong Kong court ruled in favor of Elliott’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. Elliott’s lawyer argued that the placement was against shareholders’ interests and should have been more carefully considered by the board.

‘Proper Value’

In its letter Thursday, Elliott said the board of the bank, one of Hong Kong’s last independent lenders, should now focus on delivering "proper value" for stockholders. BEA’s second-largest shareholder, Criteria Caixa SA, which owned a 17.24 percent stake as of December, according to regulatory filings, had been released from an earlier obligation to back the company’s board on any takeover bids it received, according to a Hong Kong stock exchange announcement in January.

The bank’s largest shareholder, Sumitomo Mitsui, owns 17.43 percent of the stock.

In addition to its BEA holdings, Elliott owns a stake in CaixaBank SA, which is in the process of transferring the Hong Kong lender’s shares to its parent Criteria Caixa SA. A spokesman for Criteria Caixa declined to comment on Elliott’s proposal.

Singer, who is co-chief executive officer and co-chief investment officer of Elliott, has a net worth of $1.8 billion, according to the Bloomberg Billionaires Index.

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