BOC Hong Kong to sell Nanyang Bank for $8.8 billion

<p>This would be Hong Kong’s biggest deal.</p>

Lender BOC Hong Kong Holdings Ltd announced today (July 15th) that it plans to sell subsidiary Nanyang Commercial Bank (NCB) for HK$68 billion (£5.6 billion).

It said the sale of NCB will help streamline the group's operations by eliminating competition with BOC on the mainland, Reuters reports. It will also allow it to focus more on business in Southeast Asia. In a statement, BOC explained it will sell 100 per cent of its stake in NCB and bids will be accepted until August 25th. The potential suitor or its controlling shareholder must be a financial institution with Chinese government ownership of more than 50 per cent.

Nanyang Commercial Bank had 42 branches in the city and 38 outlets in mainland China at the end of 2014, with HK$303.9 billion of consolidated assets, according to its annual report.

NBC's non-performing loans are up

About half of NCB’s loans last year were booked in mainland China, which currently experiences a sharp rise in non-performing loans. At the end of June last year, It had a non-performing loan ratio of 0.73 per cent, up 39 basis points in six months, according to BOC Hong Kong.

"Considering the extent of bad loans at NCB, this [asking price] seems a bit rich,” Mizuho Securities Asia banking analyst Jim Antos told the South China Morning Post.

If successful, the deal would be the biggest one in Hong Kong's history. The current deal record was set by Singaporean bank DBS's purchase of Dao Heng Bank for $5.4 billion in 2001.

But Li Shanshan, a Beijing-based analyst at Bocom International Holdings Co, told Bloomberg that the price is justified. "This deal gives the potential buyer full control of NCB. That’s why the seller can ask for a high price. Deals like this are always expensive," he said.

BOC Hong Kong is a unit of Bank of China Ltd , the fourth-biggest lender by assets in China. 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.