UPDATE 3-Singapore"s OCBC offers $4.95 bln for Wing Hang Bank in bet on ...

* Acquisition of Wang Hang to be OCBC’s biggest deal ever

* Deal gets in-principle approval from HK, Singapore

regulators

* OCBC to finance deal with new equity offering, debt,

internal resources

(Adds more comments from OCBC, link to Breakingviews video)

By Saeed Azhar and Eveline Danubrata

SINGAPORE, April 1 (Reuters) – Oversea-Chinese Banking Corp

Ltd (OCBC) has offered to pay almost $5 billion for

one of Hong Kong’s last remaining family-owned banks, in a deal

that would give the Singapore lender a much sought-after gateway

to the Greater China region.

The deal to buy Wing Hang Bank Ltd was preceded by

months of negotiations, with the deadline for an agreement

extended not once, but twice. OCBC formally made the offer to

purchase the Hong Kong-based lender after reaching a deal with

major shareholders including the bank’s founding family.

OCBC, like other foreign lenders, are drawn to China’s

economic clout and the growth of its offshore yuan markets. Wing

Hang, headquartered in Hong Kong, has branches in Shenzhen,

Guangzhou and Macau – major hubs in the prosperous and bustling

Pearl River Delta.

The acquisition, OCBC’s biggest, would also help the

Singapore lender narrow the gap with domestic rival DBS Group

Holdings, which operates Hong Kong’s sixth-biggest

bank by assets.

At the same time, China’s economic growth is slowing,

prompting concerns about Hong Kong’s loan exposure to Chinese

companies, particularly those in industries that are suffering.

OCBC would also be entering a highly competitive space

dominated by mainland banks and global lenders such as Standard

Chartered PLC and HSBC. OCBC said it would

retain the name of Wing Hang, founded in 1937.

Still, Wing Hang’s sale process had attracted interest from

suitors including Agricultural Bank of China,

Australia and New Zealand Banking Group and Singapore’s

United Overseas Bank.

OCBC is offering HK$125 a share to buy all the stock of Wing

Hang, according to a joint announcement on Tuesday.

The offer came after Singapore’s second-biggest lender

reached a deal with members of Wing Hang’s founding Fung family,

their affiliates and related family trusts, as well as BNY

International Financing Corp, to buy a nearly 45 percent stake

in the bank. OCBC also reached separate deals with other

shareholders, increasing its stake to 50.66 percent.

“The deal ultimately will also depend on whether the other

shareholders will accept this at this price or not,” OCBC CEO

Samuel Tsien told reporters in Singapore on Tuesday. “We are of

the opinion that the price to be paid is fair and equitable.”

OCBC has received in-principle approval for the purchase

from Hong Kong and Singapore regulators, with formal approval

needed by June 30 for the deal to go through. The acquisition is

not subject to the approval of OCBC’s shareholders.

If the deal goes through, there will be two family-owned

banks left in Hong Kong – Bank of East Asia Ltd and

Dah Sing Banking Group Ltd.

OFFER SIZE

Wing Hang and OCBC had been locked in exclusive negotiations

since December after several players walked away from the deal

on price concerns, sources had told Reuters earlier.

OCBC’s HK$38.428 billion ($4.95 billion) offer announced on

Tuesday is lower than expectations. Sources previously estimated

the deal could be worth $5.3 billion.

“BNY Mellon is pleased to see an agreement has been reached

between Wing Hang Bank and OCBC. The offer values Wing Hang at

twice the book value, adjusting for the final dividend and the

bank premises revaluation reserve,” BNY Asia-Pacific Chairman

Steve Lackey said in an emailed statement.

“BNY Mellon believes the proposal represents the best value

for Wing Hang’s shareholders and the bank as a whole and will be

giving its full support to the offer.”

Yue Xiu Group, the trading arm of China’s Guangzhou city

government, paid a multiple of 2.08 times to buy Hong Kong’s

Chong Hing Bank last year.

The adjusted price-to-book ratio of 2.0 times paid by OCBC

is more comparable to other MA deals at the smaller Hong Kong

banks, said Daiwa Capital Markets analysts Grace Wu and Samuel

Ng in a note.

“Though the cash offer is shy of our and market

expectations, given the size of Wing Hang, we believe the offer

price is reasonable as it represents a 46 percent premium to

WHB’s closing price on Sept. 16, 2013,” when Wing Hang announced

it is in talks for a sale.

Shares of OCBC rose 0.42 percent in Singapore trading around

midday, following the announcement of the deal. Wing Hang Bank

was up 0.24 percent in Hong Kong.

CHINA AND YUAN

About 6 percent of OCBC’s pre-tax earnings in 2013 came from

the Greater China region. If it had owned Wing Hang in 2013, the

share of the contribution would have been around 16 percent,

calculations by OCBC show.

But market watchers are warning that while non-performing

asset ratios in China’s banking system are at record lows of

around half a percent, the number will only rise from current

levels, a potential drain on profits.

Wing Hang is the biggest deal for OCBC CEO Tsien, who took

the post in April 2012. The bank’s last major purchase was

completed in 2010 when it bought ING Group’s Asian

private bank for $1.5 billion.

Last week, Tsien said at the Reuters ASEAN Summit that the

bank aims to expand in Greater China which it sees as the engine

of Asian economic activity, rather than in another market in

Southeast Asia where OCBC is already well-entrenched.

Wing Hang was founded as a money changing business. It has

since grown into a mainstream retail bank with more than 70

outlets in Hong Kong, Macau and China.

Speaking at a news conference in Singapore, OCBC Chief

Financial Officer Darren Tan said the bank plans to raise equity

for the deal, but added that the exact timing and size depends

on the progress of the acquisition.

OCBC is also planning to utilise a mix of internal resources

and new debt.

“Wing Hang is already profitable so if there is no equity

raising obviously it would add to the earnings immediately,” Tan

said. “Now for an acquisition of this size, sort of a

cross-country acquisition, and the price that we pay for it,

three years is a reasonable return period.”

OCBC is being advised by Bank of America Merrill Lynch

, and Wing Hang by Goldman Sachs Group, Nomura

Holdings and KPMG.

($1 = 7.7571 Hong Kong Dollars)

(Additional reporting by Saikat Chatterjee and Michael Flaherty

in HONG KONG; Editing by Ryan Woo)

UPDATE 3-Singapore"s OCBC offers $4.95 bln for Wing Hang Bank in bet on ...