OCBC bagged Keppel Capital and our Deal of the Year 2001

FinanceAsia was in no doubt about the winner of our Deal of the Year award in 2001. And indeed, OCBC's $2.9 billion acquisition of Keppel Capital in July of that year gave us plenty of reasons to get excited.

First, there was the triple-currency bond financing of the deal; second, the clever and intricate manoeuvring to complete the transaction, "planned with the thoroughness of a military invasion" according to the write-up announcing the award; and third, there was the prospect that the acquisition would be the catalyst for an exciting period of consolidation in the Singapore banking sector.

The bond issues amounted to the biggest subordinated deal in Asia up to then, and the whole process, including getting credit ratings, hitting the road with investors and pricing the all important US dollar tranche took just 17 days, winning plaudits for OCBC's aggressive CFO, Chris Matten, and its main advisor, UBS Warburg. The timing was crucial: further bank capital launches were expected by either DBS or UOB, rival Singaporean lenders, which were also rumoured to be on expansion trails.  

In addition, an innovative make-whole provision meant that OCBC could call the bonds between September 30 and December 10 if the acquisition fell through.

It didn't of course. The markets gave the acquisition the thumbs up in the clearest possible way: OCBC's share price actually rose, surging 15% in one week alone. The non-diluting financing structure no doubt helped.

Preparations for the deal were shrouded in secrecy, which was no mean feat considering the  number of bankers and lawyers involved in what was, almost unique in Singapore's conservative banking sector, an unsolicited, hostile bid. As our editors said at the time: "The sheer surprise floored everyone."

OCBC initially offered Keppel shareholders a rather ungenerous price, equivalent to just 1.7 times book value. But it had left room to increase the price, largely because it expected other banks might throw their hats into the ring. And although no competing bids materialised, OCBC lifted its offer price by 8% -- to the equivalent of 1.86 times book -- which was enough to guarantee the irrevocable acceptance by major shareholders Keppel Corp, Allied Irish Banks (AIB) and Temasek.

Whether OCBC's bid for Keppel was a catalyst or merely coincidental when DBS and UOB then fought for ownership of OUB is hard to determine. Many analysts had already been pressing the case for consolidation in Singapore's banking sector, both to resist foreign completion and to set up a platform for extending franchises overseas.

OCBC has certainly been opportunistic since then. Notably, amid the global banking crisis at the end of the decade, it snapped up ING's private banking business in Singapore, paying $1.46 billion in an auction in October 2009 where it beat off challenges from DBS and HSBC. However, the size of ING was negligible for HSBC, and DBS's bid was believed to be half-hearted at best. Through the acquisition, it tripled its assets under management to $23 billion.

OCBC has yet to supplant DBS as the city-state's premier lender. Athough it has assets of S$183 billion ($130 billion) and a network of more than 480 branches and representative offices in 15 countries across Asia-Pacific, the UK and the US, Singapore and Malaysia still accounts for more than 80% of OCBC's total assets.

Perhaps the biggest surprise came just a few short weeks after the successful bid for Keppel. In October, OCBC chief executive Alex Au confounded commentators by quitting, in order to spend more time with his family in his native Hong Kong.

Nor did Chris Matten, who many considered the principal architect of the Keppel acquisition, stay at OCBC for much longer. He switched over to a top job as managing director of the corporate stewardship division at Temasek, the Singapore state investment company. In May 2003 he moved to the private sector, joining PricewaterhouseCoopers.

In retrospect, perhaps the deal wasn't so special after all. Although, it was heralded as groundbreaking because of its unsolicited nature, there had been clear signals that the Singapore government was keen for its domestic banking sector to consolidate. And through Temasek, the government indirectly held significant stakes in Keppel. Meanwhile, AIB, the other major shareholder, was under pressure at home to reduce its overseas investments and improve returns.