OCBC to offer shares to pay for Wing Hang acquisition

Jose Castro – Fourth Estate Cooperative Contributor

Singapore, Singapore (4E) – The second largest financial institution in Southeast Asia in terms of assets, Oversea-Chinese Banking Corp. (OCBC), is drawing up plans to put up SGD3.37 billion or USD2.7 billion through a sale offer of shares to its existing shareholders. The decision comes after OCBC had acquired Wing Hang Bank Ltd of Hong Kong.

In the share offer, OCBC is planning to sell 440 million new shares at a ratio of a share for every eight held priced at SGD7.65 per share. This price, in a statement issued by the bank, carries a 25% discount to the closing price Friday last week pegged at SGD10.20. In today’s trading, share prices fell to SGD10.16 per share.

Just last month, OCBC purchased the majority share of Wing Hang Bank during a takeover costing USD5 billion. With the takeover, OCBC can delist Wing Hang Bank and combine its operations with OCBC. The goal of the acquisition is to increase the presence of OCBC in the mainland China region. The acquisition would give OCBC 120 branches located in Hong Kong, Macau, Taiwan and mainland China.

Amongst the underwriters for the deal were Merill Lynch, JPMorgan and HSBC as well as the joint lead managers.

According to OCBC Bank Group CEO Samuel Tsien, “It will increase our exposure by 10% in the Greater China region. And we’re comfortable with that increase. With respect to the share return on equity, this acquisition will be ROE and earnings per share accretive in three years time.”

Part of the overall plan is the setting aside SGD50 million for the integration costs of the operations of Wing Hang to OCBC’s own. While no layoffs of personnel are in the offing, there is a plan to sell non-core assets.

CEO Tsien added, “We have always continued to look at non-core assets and to look for divestment opportunities for non-core assets. But it is really from the non-core assets side that, which is not part of the financial services activity that we’re engaged in. For those non-core assets, we’ll continue to look for opportunities to divest them, not in a hurry as long as they achieve the right value.”

Just this August, OCBC reported its largest profit in a quarter for the last two years. It said that its net income had risen by 54% or at USD739 million for the quarter of June until August 2014. For the second quarter of this year, OCBC also reported that more than half of its loan packages had come from entities located outside of Singapore, mostly from mainland China.

There is an air of consolidation in the Chinese banking sector. In late 2013, Chinese firm Yuexiu Enterprises purchased a majority stake in Chong Hing Bank of Hong Kong for a price tag worth USD1.5 billion.

Previously, OCBC acquired ING Groep NV’s Asian business assets in private banking, rebranding the same as Bank of Singapore, for a whopping USD1.46 billion. With this purchase and its previous one, OCBC is now ready to compete with HSBC Holdings PLC and Standard Chartered PLC for Asian banking supremacy.

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