China firm balks at $8.8 billion price tag for BOC bank unit sale

SINGAPORE/HONG KONG (Reuters) - Chinese investment firm Yue Xiu has effectively pulled out of a deal to buy a unit of lender BOC Hong Kong Holdings Ltd 2388.HK, put off by the $8.8 billion asking price amid a sharp stock market downturn, people with knowledge of the matter told Reuters.

A man walks past a Nanyang Commercial Bank (NCB) branch in Hong Kong, China August 26, 2015. REUTERS/Bobby Yip

Yue Xiu did not submit a bid to buy Hong Kong-based Nanyang Commercial Bank (NCB) by a Tuesday deadline, the people added. Reuters had previously reported that the firm, part of the provincial Guangzhou government, was one of three short-listed bidders for the bank.

The other bidders were China Cinda Asset Management Co Ltd 1359.HK and China Taiping Insurance Holdings Co Ltd 0966.HK, but the people said it was not clear if they too had pulled out of the deal. Officials at BOC Hong Kong, NCB, Yue Xiu and Cinda all declined to comment on the matter, while China Taiping officials were not immediately available.

“Bidders have walked as far as they could. The price is certainly a reservation, especially in the current circumstances,” said one of the sources, who like the others, declined to be named as the matter remained confidential.

A sale at the $8.8 billion asking price, which BOC Hong Kong had set in July, would have made NCB the biggest bank-related deal in Hong Kong so far.

The asking price, however, gives NCB - which has assets worth some HK$304 billion ($39.2 billion)- a price-to-book ratio of 1.95, nearly double the 1.05 average price-to-book ratio for listed Hong Kong banks, according to Thomson Reuters data.

The price is also especially steep as an almost 30 percent drop in Chinese stock prices since June has limited the ability of potential bidders to raise funds for acquisitions.

Some analysts have also cautioned investors about the outlook for small Hong Kong lenders such as NCB in a market that is dominated by global rivals including HSBC plc HSBA.L and Standard Chartered plc STAN.L.

The sale of NCB is aimed at eliminating competition with its parent's owner, Bank of China 601988.SS, on the mainland. The deal will also help BOC to expand its Southeast Asian business.

Bloomberg had earlier reported that bad debt manager China Cinda was the only bidder left to buy the bank. Cinda declined to comment. In January, sources had said Cinda was keen to buy a bank as a way to easily access soured loans.

Two years ago, Yue Xiu emerged as a surprise bidder for family-run Chong Hong Bank Ltd 1111.HK, which it bought for about $1.5 billion, which Reuters calculations show is a price-to-book ratio of 1.95.

Reporting by Anshuman Daga in SINGAPORE, Denny Thomas, Kane Wu, Chien Mi Wong, Prakash Chakravarti and Wiki Su in HONG KONG; Editing by Miral Fahmy