* Acquisition of Wang Hang to be OCBC's biggest deal ever
* Deal gets in-principle approval from HK, Singapore
* OCBC to finance deal with new equity offering, debt,
(Adds more comments from OCBC, link to Breakingviews video)
By Saeed Azhar and Eveline Danubrata
SINGAPORE, April 1 Oversea-Chinese Banking Corp
Ltd (OCBC) has offered to pay almost $5 billion for
one of Hong Kong's last remaining family-owned banks, in a deal
that would give the Singapore lender a much sought-after gateway
to the Greater China region.
The deal to buy Wing Hang Bank Ltd was preceded by
months of negotiations, with the deadline for an agreement
extended not once, but twice. OCBC formally made the offer to
purchase the Hong Kong-based lender after reaching a deal with
major shareholders including the bank's founding family.
OCBC, like other foreign lenders, are drawn to China's
economic clout and the growth of its offshore yuan markets. Wing
Hang, headquartered in Hong Kong, has branches in Shenzhen,
Guangzhou and Macau - major hubs in the prosperous and bustling
Pearl River Delta.
The acquisition, OCBC's biggest, would also help the
Singapore lender narrow the gap with domestic rival DBS Group
Holdings, which operates Hong Kong's sixth-biggest
bank by assets.
At the same time, China's economic growth is slowing,
prompting concerns about Hong Kong's loan exposure to Chinese
companies, particularly those in industries that are suffering.
OCBC would also be entering a highly competitive space
dominated by mainland banks and global lenders such as Standard
Chartered PLC and HSBC. OCBC said it would
retain the name of Wing Hang, founded in 1937.
Still, Wing Hang's sale process had attracted interest from
suitors including Agricultural Bank of China,
Australia and New Zealand Banking Group and Singapore's
United Overseas Bank.
OCBC is offering HK$125 a share to buy all the stock of Wing
Hang, according to a joint announcement on Tuesday.
The offer came after Singapore's second-biggest lender
reached a deal with members of Wing Hang's founding Fung family,
their affiliates and related family trusts, as well as BNY
International Financing Corp, to buy a nearly 45 percent stake
in the bank. OCBC also reached separate deals with other
shareholders, increasing its stake to 50.66 percent.
"The deal ultimately will also depend on whether the other
shareholders will accept this at this price or not," OCBC CEO
Samuel Tsien told reporters in Singapore on Tuesday. "We are of
the opinion that the price to be paid is fair and equitable."
OCBC has received in-principle approval for the purchase
from Hong Kong and Singapore regulators, with formal approval
needed by June 30 for the deal to go through. The acquisition is
not subject to the approval of OCBC's shareholders.
If the deal goes through, there will be two family-owned
banks left in Hong Kong - Bank of East Asia Ltd and
Dah Sing Banking Group Ltd.
Wing Hang and OCBC had been locked in exclusive negotiations
since December after several players walked away from the deal
on price concerns, sources had told Reuters earlier.
OCBC's HK$38.428 billion ($4.95 billion) offer announced on
Tuesday is lower than expectations. Sources previously estimated
the deal could be worth $5.3 billion.
"BNY Mellon is pleased to see an agreement has been reached
between Wing Hang Bank and OCBC. The offer values Wing Hang at
twice the book value, adjusting for the final dividend and the
bank premises revaluation reserve," BNY Asia-Pacific Chairman
Steve Lackey said in an emailed statement.
"BNY Mellon believes the proposal represents the best value
for Wing Hang's shareholders and the bank as a whole and will be
giving its full support to the offer."
Yue Xiu Group, the trading arm of China's Guangzhou city
government, paid a multiple of 2.08 times to buy Hong Kong's
Chong Hing Bank last year.
The adjusted price-to-book ratio of 2.0 times paid by OCBC
is more comparable to other M&A deals at the smaller Hong Kong
banks, said Daiwa Capital Markets analysts Grace Wu and Samuel
Ng in a note.
"Though the cash offer is shy of our and market
expectations, given the size of Wing Hang, we believe the offer
price is reasonable as it represents a 46 percent premium to
WHB's closing price on Sept. 16, 2013," when Wing Hang announced
it is in talks for a sale.
Shares of OCBC rose 0.42 percent in Singapore trading around
midday, following the announcement of the deal. Wing Hang Bank
was up 0.24 percent in Hong Kong.
CHINA AND YUAN
About 6 percent of OCBC's pre-tax earnings in 2013 came from
the Greater China region. If it had owned Wing Hang in 2013, the
share of the contribution would have been around 16 percent,
calculations by OCBC show.
But market watchers are warning that while non-performing
asset ratios in China's banking system are at record lows of
around half a percent, the number will only rise from current
levels, a potential drain on profits.
Wing Hang is the biggest deal for OCBC CEO Tsien, who took
the post in April 2012. The bank's last major purchase was
completed in 2010 when it bought ING Group's Asian
private bank for $1.5 billion.
Last week, Tsien said at the Reuters ASEAN Summit that the
bank aims to expand in Greater China which it sees as the engine
of Asian economic activity, rather than in another market in
Southeast Asia where OCBC is already well-entrenched.
Wing Hang was founded as a money changing business. It has
since grown into a mainstream retail bank with more than 70
outlets in Hong Kong, Macau and China.
Speaking at a news conference in Singapore, OCBC Chief
Financial Officer Darren Tan said the bank plans to raise equity
for the deal, but added that the exact timing and size depends
on the progress of the acquisition.
OCBC is also planning to utilise a mix of internal resources
and new debt.
"Wing Hang is already profitable so if there is no equity
raising obviously it would add to the earnings immediately," Tan
said. "Now for an acquisition of this size, sort of a
cross-country acquisition, and the price that we pay for it,
three years is a reasonable return period."
OCBC is being advised by Bank of America Merrill Lynch
, and Wing Hang by Goldman Sachs Group, Nomura
Holdings and KPMG.
($1 = 7.7571 Hong Kong Dollars)
(Additional reporting by Saikat Chatterjee and Michael Flaherty
in HONG KONG; Editing by Ryan Woo)