Wing Hang Bank (00302.HK), one of the few family-run lenders in Hong Kong, fueled a guessing game in the market when it disclosed in mid-September that its major shareholders were in talks to sell a controlling stake. Among the prospective buyers, Agricultural Bank of China (ABC) (01288.HK) is widely tipped as the frontrunner.
The reason is simple. ABC is the only one among the big four state-owned commercial lenders that does not own a retail banking license in the city. Acquiring Wing Hang would give the mainland lender a strong foothold in Hong Kong.
AgriBank has been in the territory since 1995, but it remains a laggard in terms of asset size and loan scale behind those set up by peers Industrial and Commercial Bank of China (01398.HK) and China Construction Bank (00939.HK), the 21st Century Business Herald quoted an informed source as saying. The source put the blame on the lack of retail platform for ABC’s Hong Kong branch.
Even though the purchase price for Wing Hang is said to be as much as three times its net asset value, AgriBank may still be willing to pay a premium since ABC International, its investment banking flagship, has acknowledged that the cost to erect a retail network that can compete with Wing Hang’s 50 branches is likely to exceed the price/book ratio of 3, not to mention the time needed to build such a network.
China Merchants Bank (03968.HK) took over Hong Kong-based Wing Lung Bank at 2.95 times book value in 2008. The deal created a great synergy in cross-border yuan business that should boost the confidence of ABC to enhance its presence in the city through acquisition.
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