China Cinda Asset Management Co was the sole bidder for Hong Kong lender Nanyang Commercial Bank in an auction that drew tepid interest amid China’s cooling economy, people familiar with the matter said yesterday.
China Cinda Asset Management Co was the sole bidder for Hong Kong lender Nanyang Commercial Bank in an auction that drew tepid interest amid China’s cooling economy, people familiar with the matter said.
The Chinese bad-loan manager was the only firm to submit a binding offer by the August 25 deadline, paving the way for it to win the auction pending final negotiations with BOC Hong Kong Holdings, the people said. It will pay near the reserve price of HK$68bn ($8.8bn), one of the people said, asking not to be identified because the discussions are confidential.
A deal at that price would be the largest purchase of a Hong Kong lender, surpassing DBS Group Holdings’ $5.4bn takeover of Dao Heng Bank in 2001, according to data compiled by Bloomberg. The state-owned enterprise is bidding amid a $5tn stock rout in China that’s triggered unprecedented government intervention in the market.
“This is a case of an SOE assisting another SOE,” said Jim Antos, an analyst at Mizuho Securities Asia in Hong Kong. “There is a possibility that the authorities want the deal to go through and acted as a ‘marriage broker.’” Cinda shares fell 3% in Hong Kong yesterday to close at the lowest level since its December 2013 initial public offering.
The reserve price was equal to about 1.95 times Nanyang Commercial’s book value at the end of 2014. The transaction will add to the $7.3bn of bank takeovers in Hong Kong over the past five years as the city’s role in cross-border financing expands, Bloomberg-compiled data show.
Cinda, based in Beijing, was created in 1999 to buy bad debts from state-owned Chinese banks on the verge of insolvency.
The company, which had 544.4bn yuan ($84.9bn) of total assets at the end of last year, has been expanding to offer other financial services including fund management, insurance, leasing and securities broking.
“Bidding for Nanyang shows a different direction for Cinda’s business strategy,” Linus Yip, a Hong Kong-based strategist at First Shanghai Securities, said by phone.
“Cinda, as a bad loan manager, wants to diversify in the financial industry.” China Resources Holdings Co and Yue Xiu Group, owner of Hong Kong’s Chong Hing Bank, were among suitors weighing binding offers for Nanyang, people with knowledge of the matter said last month. Cinda, China Life Insurance Co and New China Life Insurance Co were among those shortlisted to proceed earlier in the bidding, people with knowledge of the matter said in May.
“Some of the suitors were concerned about the macro economy and the banking industry,” First Shanghai Securities’ Yip said.
BOC Hong Kong declined to comment in an e-mailed statement.
Representatives for Cinda, Yue Xiu and China Resources Holdings declined to comment.
BOC Hong Kong, an arm of China’s fourth-largest lender by assets, said in July it’s seeking at least HK$68bn for Nanyang as part of a push to focus more on Southeast Asia. BOC Hong Kong said on July 15 it would only accept bids from Chinese state-owned enterprises with experience operating a financial institution.
State-owned investment firm Central Huijin Investment, which holds stakes in the most important Chinese financial institutions, is BOC Hong Kong’s ultimate controlling shareholder. Cinda is 67.8% owned by the Chinese finance ministry, according to its latest annual report.
BOC Hong Kong chairman Tian Guoli was previously chairman of Cinda and worked at the asset manager for more than 11 years, according to the bank’s website.