Public Bank made the offer through its Hong Kong financial services subsidiary JCG Holdings Ltd. It will pay 2.5 times book value for Asia Commercial Bank, which operates 12 branches in Hong Kong, a branch in Shenzhen and has representative offices in Shanghai and Shenyang. But what is key, is that Asia Commerical Bank has been given approval by the Chinese authorities to open more branches in China.
Asia Commercial is typical of Hong KongÆs privately held banks. It is controlled by its 72-year-old chairman Robin Chan, who has a 33% stake. His son, Hong Kong legislator Bernard Chan, is also executive director and president of the company.
However, this deal is not necessarily a sign that Hong KongÆs big families are getting out of the banking business û as much as it is a harbinger that outsiders are seeing Hong KongÆs small banks as a stepping stone to China. Asian Financial reportedly sold the bank unit to focus on its insurance business. It received 12 bids for Asia Commercial Bank including banks from China and Taiwan.
Its 2.5 times book valuation is a sign of how much the China connection matters. By comparison, consider that in August 2003 Wing Hang Bank acquired Chekiang First Bank for HK$4.8 billion ($615 million) from Mizuho Corporate Bank. That was executed at 1.22 times book. To be fair, it was in the period when Hong Kong was emerging from SARS and the seller was Japanese - not always the best negotiators in M&A sales.
JPMorgan advised Asia Financial Holdings on the sale of its unit.
Public Bank reported that fourth quarter profit in 2005 rose 15% to M$391.1 million ($105 million) thanks to increased lending. However, analysts say that future growth potential is likely to be capped by the fact that the Malaysian banking market is becoming increasingly tight, not to mention the impending competitive pressures of foreign banks.
But China is a growth market, and a number of banks (including Taiwan's Fubon) have decided that Hong Kong may be the best way to play it. Hong Kong banks, for example, seem to have fewer hurdles to jump through than foreign banks entering the mainland market.
Asia Commercial had assets of HK$14.71 billion (US$1.9 billion) as of mid-2005. While its total loans in the first half of last year amounted to only 0.4% of lending by all financial institutions in the city, it is the China potential that matters more than the existing numbers in Hong Kong.
Although officials from Asia Finance declined to comment on Wednesday, shares of Asia Financial were suspended and closed Tuesday at HK$3.60. The stock has risen 21% so far this year. Similarly, a spokesman at JCG declined to comment but its shares were also suspended on Wednesday and had closed at HK$7.90 on Tuesday.
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