Bank of East Asia Up Most Since 2009 as Elliott Urges Sale

  • Hedge fund sent letter to shareholders pushing for bank's sale
  • Elliott needs to convince bank's two largest shareholders

Bank of East Asia Ltd. shares surged the most since November 2009 after one of its shareholders, Elliott Management Corp., urged the Hong Kong lender to explore a sale of the company.

Meanwhile, Dah Sing Financial Holdings Ltd., which controls another independent Hong Kong bank, climbed as much as 8.8 percent to the highest intraday level since Dec. 7, after Reuters reported Country Garden Holdings Co. and China Life Insurance Co. flagged interest in its $1 billion insurance asset.

Shares of BEA, co-founded by the family of Chairman David Li, rose as much as 9.2 percent, the biggest intraday gain since November 2009, and traded 6.2 percent higher at HK$23.15 as of 11:52 a.m. Hong Kong time on Friday. That compared with a 0.5 percent gain in the benchmark Hang Seng Index.

Elliott, a hedge-fund firm run by billionaire Paul Singer that holds over 7 percent in BEA, wrote in a letter to other shareholders Thursday that the lender should explore a sale “at an appropriate premium.” Previous sales of Hong Kong banks have been priced at an average of 2 times book value, which for BEA would equal about HK$60 ($7.70) a share, Elliott said in the letter.

“Investors are excited about the news that BEA could be a takeover target,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “A sale may not come in the end given its shareholding structure. Both the banking industry and the economy are not doing great, so it may not be a good time for a sale.”

Slim Chance

Elliott’s letter comes after a Hong Kong court in June ruled in favor of the hedge-fund firm’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. SMBC, the largest shareholder of BEA, owns 17.4 percent of the Hong Kong bank, while Criteria Caixa SA has a 17.2 percent stake.

The letter “indeed gives pressure to the board, but the chance is slim to none,” Wan said. “Elliott wouldn’t have had to send the letter out to all shareholders if BEA’s two major investors said yes already.”

BEA, trading at a price-to-book ratio of 0.78 times, was the second-worst performer in the Hang Seng Finance Index this year through Wednesday, the day before Elliott sent its letter. It fell 27 percent.

Before Elliott urged publicly that BEA should seek a sale of the company, Criteria Caixa had been released from an earlier obligation to back the Hong Kong lender’s board on any takeover bids it received, according to an announcement in January. Yet analysts aren’t rating the stock as if an acquisition was on the horizon.

None of the 15 analysts tracked by Bloomberg who follow BEA have buy ratings on the stock. Eight recommend investors sell and the rest rate it a hold, giving BEA a consensus rating of 1.93 out of 5, the least among the Bloomberg Asia Pacific Banks Index’s 56 members. China exposure prompted Goldman Sachs Group Inc. to reiterate its long-standing sell rating on BEA stock last month.

The bank’s nonperforming-loan ratio in China more than tripled to 2.65 percent by June from a year earlier, higher than the 1.5 percent average for the nation’s banks the same month. Brian Li, BEA’s deputy chief executive officer, said in a September interview that the bank will take action on its China business that is “dragging down our overall performance.”

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