Great Eastern Holding

[weijian]

hi gzbkel,

OCBC has stated their motivation for the VGO when it was announced on 10th May 2024 and I re-produce it again below in italics (bold emphasis mine):

The Offer is expected to be earnings accretive to the Offeror. GEH provides diversification to the Offeror’s earnings base to deliver balanced earnings growth through economic cycles. The GEH Group has contributed an average of about SGD700 million annually in net profit to the Offeror over the past ten years, which translates to an average of about 15 per cent. of the Offeror’s yearly net profit over this period.

The Offer presents an opportunity for the Offeror to deploy its capital to generate greater returns for its shareholders. By increasing its investment in GEH, the Offeror can further capture the benefits from ongoing synergies and have a greater share of GEH’s value.

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So OCBC's motivation is pure economics - They want to acquire as much as possible, shares that are accretive to their own earnings. As such, we could reasonably conclude the below:

1. GEH's listing status or free float is not part of their consideration.
2. GEH placing out new shares to 3rd parties to restore free float go against their motivation (since it dilutes OCBC's share of EPS).
3. OCBC placing out acquired shares to 3rd parties to restore free float go against their motivation (since acquired shares are accretive to OCBC's own earnings).

Based on OCBC's FY23 results, its interest income margin is ~5% and if we assume it is excess capital that OCBC is using (where interest expense is zero), then I guess OCBC cannot pay GEH minorities beyond P/E~20 to maintain "accretive earnings" to themselves.

CEO Helen Wong is paid by OCBC, not GEH or GEH OPMIs (just like FF Wong gets his remuneration and most of his wealth with BSL, not BP), so it is understandable that her top priority is to maximize OCBC's interests.

Is the insurance business a sufficient countercyclical effect against lending margins? In the prior 2 years, rising rates + inverted yield curve gave huge tailwinds to NIM but a big headwind to insurance's long term asset valuations and single premium plan business.

Will the near future facilitate a wind change for GEH and allow a win-win for everyone?

Future offer for Great Eastern, if any, will be made in interest of OCBC: CEO Helen Wong


IF OCBC were to make any future offers for the shares in Great Eastern Holdings (GEH) it does not own, it will be in the interest of OCBC and its shareholders, and not GEH’s minority shareholders, said the lender’s group chief executive Helen Wong.

https://www.businesstimes.com.sg/compani...helen-wong