HONG KONG (Reuters) - Industrial and Commercial Bank of China Ltd, the world’s most valuable bank, said it would pay shareholders of its Hong Kong arm a 27 percent premium to take it private, as part of an effort to expand its presence there.
Each ICBC (Asia) Ltd shareholder would receive HK$29.45 per share, ICBC said in a proposal posted on the Hong Kong exchange on Tuesday, an exercise that would cost the bank HK$10.8 billion ($1.4 billion).
“While ICBC (Asia) is currently trading at its recent high, we believe further growth of the business may be limited by its status as a listed company in Hong Kong,” the banks said in a joint statement.
“After ICBC (Asia) has been privatized, it will have much greater flexibility to take advantage of ICBC’s resources as the business continues to develop in the coming years.”
Trade on ICBC (Asia) shares will resume on Wednesday after being suspended on July 27, the banks said, adding that the price also represents a 48.7 percent premium over its 90-day running average.
The bank also said that ICBC will not raise the current offer price, and that ICBC (Asia) may have to consider other fundraising methods such as a rights issue if shareholders reject the offer.
The offer would represent a price-to-book ratio of about 2.1 times ICBC (Asia) net asset value at the end of 2009. In the last comparable transaction, China’s CITIC Group offered a PB ratio of about 1.4 times to take its Hong Kong arm private.
Goldman Sachs and ICBC International Capital served as joint financial advisers to ICBC, the bank said.
ICBC currently owns about 73 percent of its Hong Kong unit’s total issued shares. It is unable to pump new capital into ICBC (Asia) because this could push it past the minimum public float of 25 percent required by Hong Kong regulators.
ICBC’s offer has a “50-50” chance of getting past shareholders, said Ivan Li, a banking analyst at Kim Eng Securities in Hong Kong.
“The price ICBC is offering could be higher,” Li said.
The privatization will allow ICBC to provide additional capital to the Hong Kong unit, allowing it to compete more effectively against local players such as HSBC and Bank of China (Hong Kong).
Shares of smaller banks in the territory such as Dahsing Bank and Wing Hung Bank have already risen on expectations that they could become potential takeover targets as ICBC moves to expand its presence in Hong Kong.
Such expectations stem from a history of acquiring smaller rivals to grow its business. ICBC (Asia) acquired Fortis Bank Asia HK’s retail and commercial banking operations in 2004, and China Mercantile Bank in 2005.
Additional reporting by Alison Leung; Editing by Jon Loades-Carter