Hang Seng Bank acquisition 'offers chance to cash out'

南華早報 BIZ1 BIZ |666 字 |2025-10-11

HSBC's US$13.6b privatisation deal seen as a win for both parties and their shareholders

The US$13.6 billion bid by HSBC Holdings to take full control of Hang Seng Bank could be enticing enough for investors to cash out as the deal creates long-term value for the London-based bank, although some analysts said the offer could be sweeter.

On Thursday, HSBC offered to acquire the remaining 36.5 per cent stake in Hang Seng Bank it does not own at HK$155 per share, a 30 per cent premium over the previous day's closing price. It owns 63.5 per cent of Hong Kong's largest domestic bank.

The proposal valued Hang Seng Bank at HK$290 billion, representing 1.8 times its book value, "significantly higher" than comparable Hong Kong peers, according to HSBC. The book value offers insights into whether a stock is over- or undervalued.

The generous offer propelled Hang Seng Bank's stock to log its biggest intraday surge on record.

However, Mike Leung Kit-man, director of Wocom Securities, said a "reasonable" price-book ratio should be between 2.3 and 2.5 times.

"I'm more optimistic about Hang Seng Bank's prospects, given that the worst may be over," Leung said. "The Hong Kong stock market has advanced so much this year, and property prices, especially commercial real estate, may rise a bit next year."

He said property prices would at least stabilise while the bank dealt with sour loans.

Leung compared HSBC's proposal with Chong Hing Bank's privatisation by Yuexiu Group in 2021 and China Merchants Bank's acquisition of Wing Lung Bank in 2008 – both deals carried a price-book multiple of more than two.

Other analysts said HSBC's move reflected the new management's priorities and was aimed at creating long-term value for shareholders.

The valuation fit the British financial giant's calculation, Citigroup research analyst Andrew Coombs said in a note.

With HSBC group CEO Georges Elhedery's main reorganisation and cost-saving plans well under way and the bank's capital position healthy, management was now focusing on deploying capital, Coombs said.

This shift made sense as organic loan growth was slow and share buy-backs were no longer as effective in boosting earnings per share, he added.

Hang Seng Bank's acquisition met the criteria HSBC set in February, which included strategic alignment with its home market growth plans, increased scale, minimal distraction from organic growth and greater value creation than share buy-backs, Elhedery said in a media briefing after the announcement.

He noted the offer represented a 49 per cent premium to Hang Seng Bank's average share price in the past 12 months.

"We think it's a substantive premium which offers significant cash realisation opportunity for the current shareholders in Hang Seng Bank," Elhedery said.

The privatisation deal is expected to conclude in the first half of 2026, subject to approval by at least 75 per cent of the voting rights held by minority shareholders and the go-ahead from the Hong Kong High Court.

There are no significant shareholders in Hang Seng Bank apart from HSBC, with small stakes broadly distributed and largely held by passive investment funds. The shareholders are expected to receive a detailed document, including a timetable related to the proposal, within 21 days of the announcement.

The offer would be a win for both parties and their investors, said Dickie Wong, executive director of research at Kingston Securities.

"While HSBC will take a hit on its common equity tier one ratio and halt its share buy-backs for three quarters, the deal is a bargain and will boost the bank's earnings per share in the long run," he said.

Hang Seng Bank's investors could take profit, thanks to the rising share price, and consider buying HSBC stock after the privatisation if they held a long-term bullish view on the two banks, Wong added.

"We continue to view Hang Seng Bank as a core subsidiary of [HSBC] and that the ties between Hang Seng Bank and the wider HSBC group will be further strengthened," S&P Global Ratings analysts said in a note.