OCBC raises the bar with a huge sweetener
OOCBC Bank, the second-biggest lender in South-east Asia, has set its sights on raising $3.37 billion through a rights issue to boost its capital.
It will offer more than 440 million shares to existing holders at a ratio of one share for every eight held for S$7.65 each, said the bank in a statement yesterday.
And this, for investors, means getting their hands on more blue chip shares at a 25 per cent discount to the stock's closing price last week of S$10.20.
Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia, told Bloomberg that the market was expecting "a much higher capital issue to pay for Wing Hang".
In a bid to tap into the growing Greater China region, OCBC acquired most of Hong Kong's Wing Hang Bank (WHB) in a $6.23 billion takeover last month.
"The 25 per cent price discount is irresistible, in our view, and the highest we have seen in years of following Asian banks," said Mr Antos.
"We would be buyers at this attractive price."
The share sale is aimed at bolstering its balance sheet and financial flexibility following the acquisition of WHB, said OCBC.
Analysts gave the move the nod, adding that the price offered was an "attractive" one for a first-tier bank, and that the shares are likely to be snapped up.
"OCBC is shoring up its core equity capital and ensuring that its reserves are in place," said CMC Markets analyst Desmond Chua.
"This builds more credibility for the bank, especially after its takeover of WHB."
CIMB research head Kenneth Ng pointed out that going down the rights issue route also takes away the "last overhang for the stock".
"It removes previous concerns about the quantum and structure of this widely expected move, as the size of the rights is now known and quantifiable," he said in a note released yesterday.
To add to that, OCBC will see its earnings go up by 10 per cent in the financial year 2014-15, when combined with that of WHB, said Mr Ng.
He expects only a 2 to 3 per cent dilution to earnings per share for FY 2015-16.
With the acquisition of WHB in place, OCBC could find itself on a par with competitor DBS Bank in terms of regional expansion, said analysts.
DBS' current reach includes China, India, Hong Kong, Taiwan and Indonesia.
"Singapore banks cannot compete with multinational banks such as Citibank or Standard Chartered if they continue to remain as Singapore banks," said SIM University's finance professor Sundaram Janakiramanan.
"They need to look for expansion."
Still, moving on to the Greater China region may be "risky and expensive" for now, with China facing liquidity issues, noted Mr Chua.
"But having a foot in there right now would open many doors later. It's a move that will pay off in the longer term," he said.