Wing Hang Bank to kick off trading ex-rights on 25 August

Payment deadline is on September.

OCBC has acquired Hong Kong-based Wing Hang Bank for SGD6.2bn cash after a successful takeover offer, which closed end-July, raising the Greater China contribution to 16% of group earnings from 6%.

According to a research note from Nomura, under the takeover offer which closed end-July, OCBC received acceptances of 95% from Wing Hang Bank shareholders.

OCBC will compulsorily acquire the rest of the minorities and thus, Wing Hang Bank will become a wholly owned subsidiary.

Here's more from Nomura:

Total acquisition cost of HKD38.4bn (~SGD6.2bn) or HKD125/Wing Hang Bank share was settled in cash. The shares of Wing Hang Bank ceased trading on 29 July.

The acquisition price/book of 1.8x appears reasonable as earlier HK-based banks’ acquisitions were valued above 2.0x price/book – Yue Xiu (unlisted) acquired Chong Hing Bank at a price/book of 2.1x, while China Merchants Bank bought Wing Lung Bank at a price/book of 2.9x.

Wing Hang is one of Hong Kong’s longest established banks, founded in 1937. It has a network of 70 branches, 42 in Hong Kong, 12 in the Pearl River Delta region and 13 in Macau.

Its strength is mainly in retail and SME banking, which nicely complements OCBC’s north Asia corporate banking exposure. Among the mid-sized Hong Kong banks, Wing Hang is ranked fifth-largest.

The bank has announced a 1-for-8 rights issue of 440mn new shares at an issue price of SGD7.65/share.

The rights issue will raise about SGD3.3bn, which will raise the group’s common equity Tier 1 ratio to 10.2% following the completion of the Wing Hang Bank acquisition.

The stock will trade ex-rights on 25 August, with a payment deadline of 15 September.

The new shares will commence trading by end-September. The Lee Group Companies (unlisted) which holds an effective stake of 27% in OCBC, has already provided an undertaking to subscribe to its portion of the rights issue.

We estimate that OCBC Group’s FY15F ROE will be reduced to 12.7% from 14.2% while the net EPS will be diluted from SGD1.13 to SGD1.00.