Overseas Chinese Banking Corporation (OCBC Bank)

Doubts over OCBC's $6 billion China gamble

Buying HK bank gives it access, but is price too high?

Published on Apr 05, 2014


A Wing Hang Bank branch in Hong Kong. OCBC is paying a significant premium for Wing Hang when compared to the valuation assigned to OCBC by local share investors. -- PHOTO: BLOOMBERG

By Goh Eng Yeow, Senior Correspondent

IF OCBC Bank is buying Wing Hang Bank merely to expand its footprint in Hong Kong's crowded banking market, the $6.23 billion it will have to splash out for the acquisition makes little sense.

After all, OCBC's shares trade at just 1.3 times net worth and it would be acquiring the Hong Kong lender at about twice its book value.

In other words, OCBC is paying a significant premium for Wing Hang when compared to the valuation assigned to OCBC by local share investors.

The acquisition also comes at a time when growth in the mainland economy is slowing down and the US central bank's tapering efforts may reverse the flow of cheap deposits into Hong Kong.

But many analysts are keen to point out that OCBC's reason for such a deal boils down to access to mainland China.

The purchase would double OCBC's branch network in China. There would be further scope to grow Wing Hang's deposit base in the Chinese currency as OCBC capitalises on its reputation as one of the world's strongest banks to entice more Chinese savers into its fold.

However, the icing on the cake for OCBC is the opportunity afforded by the Wing Hang deal to ride on trade finance growth in China, where its local rival DBS Bank has built up a substantial trade finance business.

This is crucial to OCBC, which may find growth on its home turf - the Singapore market - stymied by moves such as the Government's slew of measures to cool the residential market.

As Britain's Financial Times points out, trade finance is particularly popular in Asia, and business in this area has boomed for banks, especially in China. It also noted that OCBC's Greater China loan book grew more than 50 per cent last year, driven by a near doubling of its trade finance business.

On paper at least, Wing Hang's China branches make an attractive beachhead for OCBC to connect the bustling Pearl River delta in southern China with the Singapore lender's traditional heartland in South-east Asia.

So far, investors appear to have bought into the story. Since it resumed trading on Tuesday after a halt to announce the deal, its share price had risen 2.1 per cent to $9.71 yesterday.

But as Standard Chartered analyst Jaj Singh observed in a note, DBS' less-than-triumphant record in Hong Kong will temper investors' views of OCBC's China ambitions with caution.

In 2001, DBS bought Hong Kong's Dao Heng Bank for $10 billion, or three times book value. But it later had to make writedowns of at least $2.1 billion on its purchase.

Wrote Mr Singh: "OCBC speaks about its aspirations for China, but 77 per cent of Wing Hang's pre-tax profit is from Hong Kong. Is a Hong Kong presence necessary for the yuan business? Will the upcoming free-trade zones in Shanghai and Guangzhou dilute the importance of Hong Kong?"

Then there is the question of whether OCBC will have to ask its shareholders for money to fund the acquisition.

Credit Suisse, which keeps its underperform rating on OCBC, believes the lender may need a $2.5 billion to $3 billion rights issue to help fund the purchase.

"While the deal provides some strategic benefits to OCBC in Greater China, we remain sceptical of its financial benefits, given the premium being paid. Potential dilution risk from an equity raising is a near-term overhang," it added.

engyeow@sph.com.sg

"OCBC Bank has raised US$1 billion in bonds that comply with the Basel III bank capital rules. The capital raising move came after OCBC announced last week that it is acquiring Hong Kong's Wing Hang Bank for about US$5 billion (around S$6.2 billion)."

US$1B today, another 2B to go?

Price holding steady while awaiting news of more fundings from capital markets,

Investors quiz OCBC directors

Flurry of queries on planned acquisition of Wing Hang
Published on Apr 25, 2014 3:30 AM


OCBC chief executive Samuel Tsien says Hong Kong’s Wing Hang Bank offers OCBC a leg up in certain business segments in Greater China where the latter may not be so strong. -- PHOTO: BLOOMBERG

OCBC chief executive Samuel Tsien says Hong Kong’s Wing Hang Bank offers OCBC a leg up in certain business segments in Greater China where the latter may not be so strong. -- PHOTO: BLOOMBERG

OCBC chief executive Samuel Tsien says Hong Kong’s Wing Hang Bank offers OCBC a leg up in certain business segments in Greater China where the latter may not be so strong. -- PHOTO: BLOOMBERG
Mr Tsien said Wing Hang’s non-performing loans ratio stands at just 0.44 per cent.
Dr Cheong said the bank has confidence in the future of Greater China.


By YASMINE YAHYA

OCBC Bank shareholders peppered directors with probing questions about the planned acquisition of Hong Kong's Wing Hang Bank, just minutes after the annual general meeting started yesterday.

It was clear that investors were keen to get a first-hand account of the rationale behind the recently announced deal which, at $6.23 billion, will be OCBC's largest.

The first questioner asked if the bank could grow organically in China without having to acquire another lender and whether the economic slowdown in China would affect Wing Hang's financial health.

OCBC non-executive chairman Cheong Choong Kong said the bank takes a long-term view and has confidence in the future of Greater China, adding: ''Whatever short-term challenges there may be, we are confident that the CEO and his management team will be able to handle and respond and overcome effectively.''

Chief executive Samuel Tsien said Wing Hang offered OCBC a leg up in certain business segments in Greater China where OCBC may not be so strong. Wing Hang, for example, has a strong yuan presence there.

''The yuan is now becoming an increasingly important trade currency and it is likely to become an investment currency as well. Without access to a strong (yuan) base, we will not be able to expand into that area, which is becoming a dominant one particularly for Asia,'' he noted.

''Hong Kong is the only place right now which is able to provide us with the scale that is necessary for us to build up that offshore (yuan) business... The Wing Hang franchise provides us with the opportunity to move into that area, which is going to be the driving force for our additional incremental business activities going forward,'' he added.

Another shareholder asked if Wing Hang's proportion of non-performing loans could rise as China's credit bubble bursts.

Mr Tsien noted that Wing Hang's ratio of non-performing loans stands at just 0.44 per cent, less than OCBC's 0.7 per cent, showing the Hong Kong lender has been prudent in risk management.

''We expect that the portfolio quality will continue to be maintained at a very satisfactory state,'' he said. ''The target market segments that it focuses on are segments that it understands and is able to manage, just like OCBC does. It is our intention to maintain the type of portfolio control that we have as we expand into Greater China for the future combined entity.''

yasminey@sph.com.sg

No news of how they going to pay for acquisitions? completely thru loans?

China playing key role in S'pore banks' profit growth
Published on May 3, 2014 1:25 AM



By Goh Eng Yeow Senior Correspondent

AN INTERESTING takeaway from the first-quarter results released by Singapore's three local lenders is the role China now plays in determining the growth in their bottom-line earnings.

DBS Group Holdings reported a 9 per cent jump in firstquarter profit to $1.03 billion. Including one-off items, that gain would have risen to $1.23 billion. Over the same period, OCBC's net profit jumped 29 per cent to $899 million, while United Overseas Bank's (UOB) net profit climbed 9.2 per cent to $788 million.

Going beyond the headline numbers, what enabled both DBS and OCBC to beat market expectations of their earnings was the boost they received from their China-related activities. UOB's in-line results were a reflection of its smaller China exposure.

As CIMB Research's Mr Kenneth Ng and Ms Jessalynn Chen noted in their analysis of the three banks' results: "While its peers saw treasury, trade and loan fees bloom on the back of China-related activity, UOB's coyness with China trade loans left it shy of a non-net interest income driver in the first quarter when Asean customer flows slow."

In the case of DBS, they noted that one factor driving its first-quarter growth was customer hedging on yuan trades. However, they believe that the weakening of the yuan in the current quarter might lead to a slowdown in some of these hedging activities.

Similarly, for OCBC, the analysts noted that while part of the bank's improved spread on its net interest margins had come from corporate and consumer loans, it also received a boost from higher yields on the excess yuan placed in the market.

They said: "Management clarified that OCBC's exposure to China trade was mainly through the importers of basic raw materials and commodities. The Greater China non-trade loans go towards funding the large Chinese corporates' business expansion into Asean, and not to China infrastructure or property."

Yet, strangely enough, during much of the quarter under review, UOB's stock price outperformed that of DBS, presumably because of its lower China exposure and the vast Asean business franchise which it has developed.

But the CIMB analysts said: "After the year-to-date outperformance, we reckon that UOB will now lag."

They have also turned positive on OCBC, which is acquiring Hong Kong's Wing Hang Bank to expand its outreach in China, because of the lender's rising loan spread and sustainable loan growth.

But traders are mindful that getting hitched to China's growth bandwagon can be a double-edged sword, since sentiment can suddenly turn sour if there is a sudden negative flow of news out of the mainland.

It was only recently that concerns were raised over a possible bad debt crisis in the Chinese banking system, following the default on a bond payment by a mainland state-owned company.

That, in turn, cast a pall over China lenders listed in Hong Kong and foreign lenders with big China exposure such as HSBC Holdings and Standard Chartered Bank.

In his report, Citi Research analyst Robert Kong said that DBS had confirmed it had analysed its China exposures and "remains wholly comfortable with the quality of the book".

"Our sense is that DBS is enjoying the strongest and the broadest-based business momentum, while UOB is facing more near-term challenges."

Barclays Capital Equity Research's Ms Sharnie Wong noted that UOB reported flat margins as its China growth strategy is more conservative and it is less exposed to China-related trade loans.

Whether that turns out to be a boon or bane as the three lenders pursue their different China strategies, the next few quarters will bear watching.

engyeow@sph.com.sg

Possible dividend scrip arbitrage

Cash means: 17c per share
$170 per 1000 share

Scrip means: Scrip at $8.60 (May 2nd issue price)
$170/8.60=19.77 shares
Round up 20 shares

Sell on open market odd lots
9.70 x 20 shares = $194 <<< To substitute '9.70' with any market price
Less $15 charges
$179

Gain $9

Option to select Cash / Scrip will be around 14 May 2014
Dividend payment for cash & scrip 20 Jun
Listing of new shares 23 Jun

(04-05-2014, 01:30 AM)orangetea Wrote: Possible dividend scrip arbitrage

Cash means: 17c per share
$170 per 1000 share

Scrip means: Scrip at $8.60 (May 2nd issue price)
$170/8.60=19.77 shares
Round up 20 shares

Sell on open market odd lots
9.70 x 20 shares = $194 <<< To substitute '9.70' with any market price
Less $15 charges
$179

Gain $9

Option to select Cash / Scrip will be around 14 May 2014
Dividend payment for cash & scrip 20 Jun
Listing of new shares 23 Jun

will be electing mine entirely in scripts...should ocbc do a rights issue for the wing hang bank acquisition..it will be a good chance to round up with the excess rights applications....otherwise just sit on the odd lots until SGX changes their boardlot size to 100....

Rights issue coming...

http://www.businesstimes.com.sg/archive/...r-20140628

OCBC gets requisite nods for Wing Hang takeover

OVERSEA-Chinese Banking Corp Ltd (OCBC) said all the pre-conditions to an agreement to buy Hong Kong's Wing Hang Bank Ltd had been satisfied, as various regulators had given their blessing to the US$4.95 billion deal.
OCBC, Singapore's second-largest lender, said the parties had received approvals from the Hong Kong Monetary Authority, Monetary Authority of Singapore, Hong Kong's Securities and Futures Commission, Insurance Authority and Mandatory Provident Fund Schemes Authority, as well as the Monetary Authority of Macau.
OCBC offered US$4.95 billion for Wing Hang, one of Hong Kong's last remaining family-owned banks, betting on China's continuous economic growth in what would be the bank's biggest-ever acquisition.

(30-06-2014, 07:38 AM)greengiraffe Wrote: Rights issue coming...

http://www.businesstimes.com.sg/archive/...r-20140628

OCBC gets requisite nods for Wing Hang takeover

OVERSEA-Chinese Banking Corp Ltd (OCBC) said all the pre-conditions to an agreement to buy Hong Kong's Wing Hang Bank Ltd had been satisfied, as various regulators had given their blessing to the US$4.95 billion deal.
OCBC, Singapore's second-largest lender, said the parties had received approvals from the Hong Kong Monetary Authority, Monetary Authority of Singapore, Hong Kong's Securities and Futures Commission, Insurance Authority and Mandatory Provident Fund Schemes Authority, as well as the Monetary Authority of Macau.
OCBC offered US$4.95 billion for Wing Hang, one of Hong Kong's last remaining family-owned banks, betting on China's continuous economic growth in what would be the bank's biggest-ever acquisition.

according to Bank of New York Mellon's (owns 20% of Wing Hang) filing last month..this transaction is expected to be completed in 3Q this yr.....yes a rights issue is possible in the next 3 months