Singapore's Oversea-Chinese Banking Corp has begun exclusive talks to buy Hong Kong's Wing Hang Bank (0302.HK: Quote, Profile, Research) in a deal that would value the family-run lender at about $5.3 billion, two people familiar with the matter told Reuters.
OCBC, Singapore's No. 2 lender by assets, has offered about twice Wing Hang's book value, the sources said. Final terms are still being negotiated, they added, but it remains unclear when the parties are likely to clinch a deal. Binding bids were due in mid-December.
A successful deal would help OCBC to bridge the gap with its bigger rival DBS Group Holdings (DBSM.SI: Quote, Profile, Research), which has a larger presence in North Asia. Wing Hang Bank was founded as a money changing business in 1937 by the late Y.K. Fung but has grown into a mainstream retail bank with more than 70 outlets in Hong Kong, Macua and China.
Wing Hang said in September that its biggest shareholders had received preliminary offers from un-named independent third parties, putting the bank in play.
Hong Kong's Fung family and BNY International Financing Corp (BK.N: Quote, Profile, Research) are the biggest shareholders with a combined 45 per cent stake.
Reuters previously reported that the sale process had attracted interest from suitors including Agricultural Bank of China, Australia and New Zealand Banking Group and Singapore's United Overseas Bank. But Wing Hang's high price expectations prompted many to drop out of the auction.
Wing Hang currently trades at a price-to-book ratio of 1.84, Thomson Reuters data show. Its book value is HK$20.4 billion ($2.63 billion), according to the latest published data.
GATEWAY TO CHINA
Hong Kong is Asia's sixth-biggest bank loan market and is attractive to foreign lenders keen to tap into the fast-growing offshore yuan fixed-income market. Hong Kong also offers a gateway into mainland China as a major source of financing for Chinese companies.
At the same time, some large shareholders in Hong Kong's domestic banks, struggling to counter the dominance of big international players such as HSBC, Standard Chartered and leading Chinese lenders, are using the recent rally in banking shares to cash out of the sector.
Wing Hang shares rallied 44.6 per cent in 2013, against a 12.3 per cent rise in the benchmark Hong Kong share index .HSI, partly driven by takeover speculation. On Friday Wing Hang shares rose 0.2 per cent to close at HK$117.20.
A Wing Hang sale would be the second big Hong Kong banking acquisition within a few months. In October the trading arm of China's Guangzhou city government agreed to buy three quarters of Chong Hing Bank for about $1.5 billion, the first such takeover since the $4.7 billion deal for Wing Lung Bank by China Merchants Bank in 2008.
Bloomberg earlier reported that OCBC had submitted a binding bid to buy Wing Hang, citing sources familiar with the matter.
OCBC declined to comment on Friday, while Wing Hang did not reply immediately to an email seeking comment.
Wing Hang Bank is being advised by Goldman Sachs Group