OCBC Can “Blink and Stare” At Wing Hang Bank

Following Elliott Management’s enhancing its stake in Wing Hang Bank, Limited (HKG:0302) (OTCMKTS:WGHGY), OCBC has two options of “blink’ and “stare”, and it’s more likely that OCBC doesn’t increase its offer price, note Credit Suisse analysts.

Elliott ups stake in Wing Hang

As reported earlier, Elliot Management, run by billionaire Paul Singer, disclosed in its filings with the Hong Kong Securities and Futures Commission last week that it has acquired an additional 8,712,000 shares of Wing Hang Bank, Limited (HKG:0302) (OTCMKTS:WGHGY) at HK$125 per share.

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Earlier, Overseas Chinese Banking Corp offered to acquire Wing Hang shares at HK$125 apiece which was conditional on its receipt of enough acceptance to lift its Wing Hang stake above 50%.

The hedge fund’s latest move has suddenly made acquirer OCBC’s life very complicated.

Under Hong Kong rules, OCBC must receive roughly 90% of Wing Hang shares to de-list the Hong Kong lender.

Wing Hang Banks price could fall

Sanjay Jain and Vineet Thodge of Credit Suisse in their report dated July 7, 2014 titled: “Twist in the tale: Should you accept OCBC’s tender offer?” note OCBC has two options: “blink” and “stare”, and it’s unlikely OCBC will enhance its offer price, while hoping to garner around a 75% stake.

The Credit Suisse analysts note in the event of OCBC not reaching 90%, Wing Hang Bank, Limited (HKG:0302) (OTCMKTS:WGHGY) price should fall soon after the tender offer closes on July 29. The analysts anticipate normalized ROEs of 10-11% for WHB in-line with a fundamental valuation of 1.0-1.2x, and implying a 40% downside.

On the other hand, the analysts note the Hong Kong lender’s minority shareholders have three options to choose from viz.: (a) accept tender offer, (b) sell in open market and (c) hold out till the next tender offer in hope of significantly higher price. However, analysts point out that the next tender offer can’t be held for one year.

The Credit Suisse analysts anticipate Wing Hang Bank, Limited (HKG:0302) (OTCMKTS:WGHGY)’s normalized ROE will work out to 10-11%, against forecast ROE of around 10%. They note that even in a blue-sky scenario, ROEs could approach mid-teens assuming higher short-term interest rates and some synergies in fee and opex. The following table sets forth normalized and blue-sky ROEs for WHB:

WHB-Normalized ROE

The Credit Suisse analysts recommend that minority shareholders tender their shares into the offer, though they have the option to wait for another offer. However, the analysts also point out that though OCBC owns 87% in Great Eastern Holding Limited (SGX:G07), the latter’s shareholders have been waiting since 2006 for another offer from OCBC.