Singapore’s Oversea-Chinese Banking Corp has reached an agreement to buy Hong Kong’s Wing Hang Bank for about $5bn, a deal now being reviewed by Hong Kong regulators, a person familiar with the matter said.
OCBC is seeking “in-principle approval” from the Hong Kong Monetary Authority, a process that could take several weeks, the person said. Assuming approval, the two banks would then announce the deal, the person added.
Wing Hang would be the second family-owned bank in the city to be sold in recent months. OCBC has agreed to buy Wing Hang for around 1.9 times its book value, the person said, which based on Wing Hang’s first-half 2013 book value of 66.40 Hong Kong dollars ($8.56) a share would be about $5bn, according to Castor Pang, research head at Core Pacific-Yamaichi.
The deal comes at a time of consolidation in Hong Kong’s banking market. Late last year, Chinese conglomerate Yuexiu Enterprises struck a deal to buy a majority stake in Hong Kong’s Chong Hing Bank for around $1.5bn. Hong Kong has only a handful of family-owned banks competing in a market dominated by the likes of HSBC Holdings and Standard Chartered.
The monetary authority, Wing Hang and OCBC declined to comment.
The deal would significantly boost OCBC’s exposure to China, raising Chinese loans to 25% of its total from around 15% currently, UBS analysts estimate. It would also give OCBC a foothold in Macau, which generates around 15% of Wing Hang’s pretax profit, as well as access to Greater China trade flows, particularly from Southeast Asia.
OCBC is building its presence in China, having bought a $383mn Singapore dollar (US$299mn) stake in Shenzhen-listed Bank of Ningbo earlier this month.
OCBC entered exclusive talks earlier this month with Wing Hang, which put itself up for sale last year. Singapore’s United Overseas Bank Ltd, Australia & New Zealand Banking Group Ltd and China’s Anbang Insurance were also interested in Wing Hang earlier in the sales process, people familiar with the matter have said.
Wing Hang is trading at 1.7 times its 2012 book value and 1.58 times its forecast 2013 book value, according to CapitalIQ.
On average, the acquisition price of Hong Kong banks has been 1.9 times book value. Chong Hing last year went for higher multiple, 2.4 times first-half last year book value.
OCBC, by comparison, is trading at 1.33 times its forecast 2013 book value.