Reuters: Hot Stocks: UPDATE 1-Chong Hing shares drop after $1.5 bln deal with China buyer

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UPDATE 1-Chong Hing shares drop after $1.5 bln deal with China buyer Oct 28th 2013, 07:53 Share this Email Print Reprints Mon Oct 28, 2013 3:53am EDT * Yue Xiu mostly operates in real estate and infrastructure business * Yue Xiu raising $1.05 bln loan to fund the deal * Chong Hing has biggest one-day percentage fall in five years (Adds analyst comment, HKMA comment, details) By Denny Thomas and Michael Flaherty HONG KONG, Oct 28 (Reuters) - Shares in Hong Kong's Chong Hing Bank Ltd slumped on Monday amid concerns a $1.5 billion offer for control of the bank may hit regulatory hurdles, while some investors took profits after a steep run-up in the company's stock. Chong Hing shares fell as much as 10 percent in its biggest one-day percentage fall in five years and its busiest trading day in a decade. Yue Xiu Enterprises (Holdings) Ltd, a unit of China's Guangzhou city government, late on Friday agreed to buy up to three quarters of Chong Hing -- Hong Kong's sixth-largest lender -- for HK$11.64 billion ($1.5 billion). A successful deal would be the first case of a non-bank acquirer from China buying a listed lender in Hong Kong, and the first takeover of a Hong Kong bank in more than five years. Yue Xiu operates a real estate and infrastructure business but has no history of managing a bank, raising concerns among analysts and traders over whether Hong Kong regulators would sign off on the agreement. "You have a Chinese city government, with no experience running a bank, agreeing to buy a Hong Kong lender," Sanford Bernstein bank analyst Michael Werner said. "It's a very interesting deal to say the least. We are unsure whether the HKMA (Hong Kong Monetary Authority) will approve the deal." Yue Xiu has a small finance business that does mainly micro lending, according to a person familiar with the matter. Buying Chong Hing Bank would help Yue Xiu get a foothold in Hong Kong, Asia's sixth-biggest bank loan market, and a rapidly growing international yuan centre. The deal would also help Yue Xiu to expand its China business. Yue Xiu, which has been working on the transaction for more than a year with the help Nomura Holdings, is confident that the HKMA will approve the deal, the person said. Yue Xiu has maintained a dialogue with HKMA, and a decision is expected within three months, the person said. Yue Xiu is raising $1.05 billion in bridge loan to part-finance the deal, Basis Point, a Thomson Reuters, publication, reported earlier. HKMA The HKMA tightened bank ownership rules earlier this month. Non-financial services companies or foreign institutions owning more than 50 percent of a bank's shares must set up a Hong Kong-incorporated holding company to hold the stock. The holding company may be asked to meet conditions on capital adequacy, risk management and the suitability of directors and senior management, according to amendments to the banking ordinance published on Oct. 4. HKMA spokesman Loren Tam said on Monday the regulator would not comment on issues relating to individuals or institutions. In recent years, Hong Kong's appeal as a banking centre has increased due to China's growing economic clout and the growth of the offshore yuan fixed-income market, while mainland Chinese banks are seeking to branch out beyond their home turf. Chong Hing's stock had risen nearly 67 percent between early August to last Thursday, when news of the bid first surfaced. Yue Xiu offered to pay HK$35.69 per share, a 4.6 percent discount to Chong Hing's Thursday closing price. Chong Hing shareholders are also eligible to receive an extra HK$4.52 per share in a special dividend if certain conditions are met. (Editing by Richard Pullin) Link this Share this Digg this Email Reprints

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