OCBC Seeks $2.7 Billion Via Rights Issue After Wing Hang

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 fell 0.1 percent to S$10.19 at 9:41 a.m. local time today.

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

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 inSoutheast Asia and target Wing Hang’s customers for its private bank.

Photographer: Munshi Ahmed/Bloomberg

Customers line up at service counters inside the Oversea-Chinese Banking Corp. bank... Read More

The share sale is aimed at bolstering its balance sheet following the acquisition, OCBC said in the statement today.

Risk Buffers

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.

OCBC appointed Bank of America Corp.’s Merrill Lynch, HSBC Holdings Plc and JPMorgan Chase & Co. to manage the rights offer.

The Singapore bank’s common equity Tier 1 capital adequacy ratio, a measure of financial strength under international Basel III banking guidelines, was 14.5 percent at the end of 2013 and would have been 11 percent if the Wing Hang purchase was taken into account, OCBC said in an April 1 statement.

The ratio primarily measures the sum of common shares and retained earnings as a proportion of a bank’s risk-weighted assets. The purchase will reduce 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.

Basel Rules

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 intends to keep its capital ratios above regulatory requirements and comparable to other Singapore banks, Chief Executive Officer Samuel Tsien said at a briefing for the lender’s second-quarter financial results on Aug. 5.

Based on fully phased-in Basel III rules that will apply from 2019, OCBC’s ratio excluding the Wing Hang purchase is the lowest among Singaporean banks at 11.3 percent, Sanford C. Bernstein & Co. analysts led by Kevin Kwek wrote in an Aug. 5 note. The levels for its two domestic rivals, DBS Group Holdings Ltd. and United Overseas Bank Ltd., exceeded 12 percent, the analysts 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.