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Hong Kong banks talk sale as bids near pre-crisis days
Some of Hong Kong’s last family-owned banks may finally be willing to sell as potential takeover valuations approach levels last seen before the height of the financial crisis.
Before yesterday, Wing Hang Bank Ltd. surged 42 percent after saying last week shareholders are in talks to sell, while Chong Hing Bank Ltd. rose 55 percent since disclosing last month approaches from suitors. Having recovered all their market value lost since the crisis, the banks are now offering buyers entry into an international hub for trade in China’s currency.
Wing Hang, more profitable than Chong Hing, may fetch as much as 3 times its book value, said Mizuho Financial Group Inc. and BNP Paribas SA. That equates to a price tag of USD7.9 billion, 68 percent more than the lender’s market value last week. No corporate bank takeover in the developed world has obtained such a multiple in more than five years, according to data compiled by Bloomberg.
“This is scarcity premium - there are only a few mid-sized Hong Kong banks available,” Frank Yuen, an analyst in the city at BNP, said in a phone interview. “Buyers are eyeing the banking license in Hong Kong. They are looking for growth opportunities in the offshore yuan business and cross-border trade flows.”
Wing Hang fell 1.1 percent to HK$117.60 at 2:11 p.m. yesterday in Hong Kong trading, while Chong Hing dropped 4.5 percent to HK$33.25. The benchmark Hang Seng index lost 0.6 percent.
Wing Hang, founded in 1937 as a moneychanger in Guangzhou, and Chong Hing, founded in 1948, are among the four remaining family-owned banks in Hong Kong. Both generate most of their income from traditional services such as loans, mortgages and credit cards, their latest annual reports show.
Wing Hang had a market value last week of HK$36.6 billion ($4.7 billion), while Chong Hing was valued at $2 billion.
Takeover speculation has mounted since November, when Chong Hing named its first chief executive officer from outside the Liu family, which controls about 60 percent of the lender. Chong Hing’s share price has since more than doubled. In March, the bank said it was open to bids.
Hong Kong’s banks are attracting suitors as the city’s role as the largest offshore yuan center draws companies seeking financing. Outstanding yuan-denominated loans in Hong Kong surged to 113 billion yuan in July from 1.8 billion yuan in 2010, the Hong Kong Monetary Authority said.
The “offshore yuan business offers good growth opportunity to Hong Kong banks,” Kathy Xu, a Hong Kong-based investment manager at Aberdeen Asset Management Plc, said in a phone interview. Aberdeen oversees about $318 billion of assets worldwide.
Wing Hang said Sept. 16 that shareholders including the family of Chairman Patrick Fung were in talks for a sale that would trigger a mandatory buyout offer.
The Oriental Daily reported that China Life Insurance Co. was a possible bidder. Wing Hang may appeal to Beijing-based China Life, the nation’s largest insurer, because it offers access to the offshore yuan market, as well as trade finance and bond sales, said Antos at Mizuho.
Wing Hang, which has more branches in Macau and China than Chong Hing, should command a higher valuation than its rival, Grace Wu, a Hong Kong-based analyst at Daiwa Capital Markets, wrote in a Sept. 17 report.
Based on the average of six analysts’ estimates compiled by Bloomberg, Wing Hang may sell for 2.5 times its book value. Mizuho estimated the bank would sell for 2 to 3 times book, while BNP put the multiple at 2.5 to 3. Wu at Daiwa estimated it would sell at the upper end of a range of 2.5 to 3.3 times.
The last time an acquisition of a bank in the developed world was announced at close to that level was before the collapse of Lehman Brothers Holdings Inc. in September 2008, according to data compiled by Bloomberg. That year, China Merchants Bank Co. beat out Australia & New Zealand Banking Group Ltd. to buy Wing Lung Bank Ltd., valuing the family-run Hong Kong bank at about 3 times book value.
ANZ Bank CEO Michael Smith has described the price paid for Wing Lung as “crazy.” It’s difficult to see anyone paying such a multiple for a Hong Kong bank in the post-crisis era, said Law, the UOB analyst. Bloomberg
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