Bloomberg News

Chong Hing Shares Suspended as Yue Xiu Said to Near Purchase (1)

October 23, 2013

Chong Hing Bank

The first acquisition of a Hong Kong lender since 2009 would give Yue Xiu, a trading arm of China’s Guangzhou city government, a network of 53 branches that would allow it to provide overseas financing for Chinese companies. Photographer: Jerome Favre/Bloomberg

Chong Hing Bank Ltd. (1111) shares were suspended from trading after three people with knowledge of the matter said Yue Xiu Group was nearing an agreement to acquire the Hong Kong lender.

An announcement may come as early as this week, the people said yesterday, asking not to be identified because the discussions are confidential. Chong Hing shares jumped 7 percent yesterday to a record close of HK$37.40, valuing the company at HK$16.3 billion ($2.1 billion). The lender’s parent, Liu Chong Hing Investment Ltd. (194), was also halted from trading.

The first acquisition of a Hong Kong lender since 2009 would give Yue Xiu, a trading arm of China’s Guangzhou city government, a network of 53 branches that would allow it to provide overseas financing for Chinese companies. Chong Hing, which named Lau Wai-man as the first chief executive officer from outside the founding Liu family last year, said in August it had been approached by prospective bidders.

“If Yue Xiu can gain a bank, it will be easier for them to offer cross-border financing,” said Samuel Ng, an analyst at Daiwa Capital Markets Hong Kong Ltd. “There’s room to expand that business.”

Two calls to Yue Xiu’s Guangzhou office went unanswered today. Edith Chan, a Hong Kong-based spokeswoman at Chong Hing, declined to comment.

Shares of the bank and Liu Chong Hing Investment were both suspended pending an announcement related to a takeover or merger, the two companies said in a joint statement today. Liu Chong Hing Investment climbed 5.5 percent to HK$19.88 yesterday.

Family Control

Hong Kong’s role as an international center for trade in the yuan has attracted Chinese financial institutions seeking to expand abroad, including China Merchants Bank Co. (600036), which paid $4.7 billion for the Wu family’s Wing Lung Bank Ltd. in a deal completed in 2009.

Hong Kong retail lenders’ exposure to non-banking companies on the mainland increased 11 percent to HK$2 trillion at the end of June from the start of this year, according to the Hong Kong Monetary Authority’s half-yearly report released last month.

The Liu family controls about 60 percent of Chong Hing, exchange filings show. The lender said Oct. 8 that its controlling shareholder was in talks with Yue Xiu and “certain other independent third parties.”

Wing Hang Bank Ltd. (302), another family-owned Hong Kong lender, said last month its shareholders were in talks to sell their stakes, without identifying any buyer. The Fung family, its affiliates and Bank of New York Mellon Corp. together hold about 45 percent of the company.

Wing Hang Bid

Agricultural Bank of China Ltd., the nation’s third largest, is considering a bid for Wing Hang, Reuters reported yesterday, citing people familiar with the matter. The Chinese lender doesn’t have overseas acquisition plans, the bank said in a statement.

Wing Hang shares gained 1.2 percent to HK$115.70 as of 10:18 a.m. Hong Kong time. Dah Sing Banking Group Ltd. (2356), run by the Wong family, rose 3.8 percent to HK$14.78, the highest intraday price since Jan. 17, 2011.

Chong Hing, with a larger family stake, is smaller and easier to acquire, said Daiwa’s Ng.

CEO Lau was appointed to replace Liu Lit-chi, a family member who had spent more than 50 years at the bank. The lender, founded in 1948 as Liu Chong Hing Bank Ltd., dropped the family name in December 2006 to “more accurately reflect the public nature of the bank,” according to its website.

‘Ridiculous’ Valuations

Chong Hing has jumped more than 150 percent in Hong Kong trading since Nov. 28, 2012, when Lau’s appointment was announced. The stock trades at 2.18 times historical book value, according to data compiled by Bloomberg. Wing Hang, with a market value of HK$35.1 billion, has a price-to-book multiple of 1.72.

China Merchants Bank’s purchase of Wing Lung Bank, completed in 2009, valued the lender at 3.1 times book value, data compiled by Bloomberg show. Australia & New Zealand Banking Group Ltd.’s Chief Executive Officer Michael Smith, who lost out to Merchants Bank in the bidding, called that ratio “crazy.”

Hong Kong banks remain overpriced, Smith said Oct. 8, describing a ratio of two times book value as “ridiculous at these times.”

Yue Xiu Group, founded in 1985 by the Guangzhou city government as a trading company for Hong Kong and Macau, operates in businesses including real estate, securities and toll roads. It is getting a $1 billion short-term loan to finance a potential Chong Hing bid, Bloomberg News reported Oct. 11.

Branch Network

The Hong Kong Monetary Authority announced changes to the city’s banking regulations this month as it sought to tighten oversight of shareholders in local lenders.

Last year, Guangzhou Securities Co., a member of Yue Xiu Group, set up a joint venture advisory company with Hang Seng Bank Ltd. (11), Hong Kong’s second-largest local lender.

Chong Hing’s network of 51 branches in the city -- it also has one each in Macau and China -- compares with more than 260 at BOC Hong Kong Holdings Ltd., the Bank of China Ltd. unit that’s the biggest local lender.

Nomura Holdings Inc. is working with Yue Xiu on the deal, while UBS AG is advising Chong Hing, the people said.

To contact the reporters on this story: Jonathan Browning in Hong Kong at jbrowning9@bloomberg.net; Zijing Wu in Hong Kong at zwu17@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net


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