OCBC Seeks $2.7 Billion Through Rights Issue After Wing Hang

Aug 18, 2014 4:09 am ET

(Updates with OCBC CEO comment in 11th paragraph.)

Aug. 18 (Bloomberg) -- Oversea-Chinese Banking Corp., Southeast Asia’s second-largest lender by assets, plans to raise S$3.37 billion ($2.7 billion) by offering shares to existing holders after its acquisition of Hong Kong’s Wing Hang Bank Ltd.

The company will sell as many as 440 million new shares at a ratio of one share for every eight held in a rights offer at S$7.65 each, Singapore-based OCBC said in a statement to the city-state’s exchange today. The price represents a 25 percent discount to the stock’s close last week of S$10.20. The shares dropped 0.4 percent to S$10.16 at 4:08 p.m. local time today.

The price is “designed to get the rights issue away quickly,” Paul Dowling, principal analyst at Sydney-based bank research firm East & Partners Pty, said by phone today. “It’ll be attractive at that kind of pricing. We would expect significant over-subscription.”

The lender bought most of Wing Hang last month in a $5 billion takeover that allows it to delist the Hong Kong bank and combine operations. The purchase gives OCBC increased access to the Greater China region, enabling the lender to offer more banking services to Chinese companies in Southeast Asia and target Wing Hang’s customers for its private bank.

The share sale is aimed at bolstering its balance sheet following the acquisition, OCBC said in the statement today. It appointed Bank of America Corp.’s Merrill Lynch, HSBC Holdings Plc and JPMorgan Chase & Co. to manage the offer.

Risk Buffers

“The market was expecting a much higher capital issue to pay for Wing Hang,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., wrote in an e-mail. “The 25 percent price discount is irresistible, in our view, and the highest we have seen in years of following Asian banks.”

Moody’s Investors Service placed OCBC’s debt ratings on review for a possible downgrade on April 3, citing a potential drop in risk-buffers and problems in replenishing capital following the acquisition. The review will be completed after the bank clarifies the extent and composition of the fundraising, Moody’s said in a statement that day.

The Singapore bank’s common equity Tier 1 capital adequacy ratio, a measure of financial strength under international Basel III banking guidelines, will fall to 13.2 percent following the acquisition and the rights offer from 14.7 percent before the takeover, OCBC said in presentation materials distributed at a press briefing in Hong Kong today.

Basel Rules

The ratio primarily measures the sum of common shares and retained earnings as a proportion of a bank’s risk-weighted assets. The purchase reduces the capital ratio because the goodwill OCBC pays for the acquisition will be deducted from common equity and the lender will also have to absorb additional risk-weighted assets from Wing Hang.

The Monetary Authority of Singapore requires banks incorporated in the country to have a minimum Tier 1 ratio of 6.5 percent from Jan. 1, 2015. The Basel III minimum by that date is 4.5 percent.

OCBC has a budget of S$40 million to S$50 million at the moment to integrate Wing Hang’s operations, Chief Executive Officer Samuel Tsien said at the briefing in Hong Kong today. The bank will look to sell non-core assets following the takeover at the right price, Tsien said. OCBC had non-core assets in Singapore and Malaysia, and some non-banking assets owned by Wing Hang, he said.

The Wing Hang purchase is the largest takeover of a Hong Kong bank since DBS, OCBC’s biggest domestic rival, offered $5.4 billion for Dao Heng Bank Group Ltd. in April 2001.

Hong Kong lenders are luring foreign buyers seeking to tap China-related business in a city that is the biggest center for offshore yuan trading. Outstanding loans in Hong Kong made in China’s currency surged 46 percent last year to 115.6 billion yuan ($18.8 billion), Hong Kong Monetary Authority data show.

--With assistance from Alfred Liu in Hong Kong.