Paul Singer’s Elliott Management Corporation has launched a legal action against Hong Kong’s Bank of East Asia for its nearly $1 billion share sale to Japan’s Sumitomo Mitsui Banking Corporation last year.
Bank of East Asia is one of the last remaining family-owned Hong Kong banks.
Elliott seeks BEA’s internal papers
According to court proceedings held Wednesday in Hong Kong, five funds linked to Elliott are seeking to compel Bank of East Asia’s directors to hand over internal papers covering their decision last September to sell 222 million new shares to Japanese megabank Sumitomo Mitsui Financial Group.
Critics question the deal as they believe BEA didn’t need to raise fresh capital and merely diluted existing investors. Elliott questioned BEA’s need to raise additional capital and suggested BEA is abusing a mandate to issue additional shares.
Hong Kong’s BEA had a tier-one equity capital ratio of 11.6% in the first half of last year, up from 11.4% at the end of 2013, and solidly in the middle of banks’ capital levels globally.
At Wednesday’s preliminary hearing, a Hong Kong judge set a timetable for both sides to present their cases formally. That hearing, which is expected to last just one day, is to take place within eight weeks.
However, a spokesman for Bank of East Asia said: “We disagree with the plaintiffs. BEA and its board believe that the proposed placement is in the best interests of our shareholders as it will further strengthen the bank’s core capital by means of investment on the part of a long-term committed shareholder and highly reputable financial institution”.
The U.S. hedge fund Elliott currently holds around HK$1.8 billion (US$232 million) worth of BEA shares. BEA’s share sale last year is the latest in a series that facilitated the founding family, headed by chairman David Li, maintaining control despite owning less than 7% of the stock outright. While Spain’s Caixabank holds 18%, SMFG has 9%. Malaysia’s Quek family holds 14.5%, and is considered to be hostile to the Li family.
Elliot – a familiar name among Hong Kong’s bankers
Elliott is not new to Hong Kong’s bankers, though activist investors have found influencing Asian companies hard going, coming up against complex webs of family-controlled companies, boards unprepared to engage and local shareholders uninterested in pushing for better performance.
As reported by ValueWalk, Elliott Management, run by billionaire Paul Singer, recently took a nearly 8% stake in Hong Kong lender Wing Hang Bank, Limited.
Elliott’s move to increase its stake in Wing Hang came as Singapore’s Overseas Chinese Banking Corp was gathering shares to complete a US$5 billion acquisition of the bank. Many felt Elliott was seeking to force OCBC to raise its price, a common and increasingly successful strategy used by U.S. activist funds, but the firm walked away at the last minute.