[China Industry Research Network] Three Breakthroughs in Yuexiu Holding Limited’s Overseas Acquisition of Chong Hing Bank
Release Date:2014-05-05 15:39:27

Holding Limited accomplished the delivery of trading for acquisition of Chong Hing Bank with HK $11.6 billion on February 14, 2014. It was Valentine's Day. This was the "first" acquisition of Hong Kong local bank by non-banking financial institution over the past 27 years; the "first" overseas acquisition of banks accomplished by a state-owned enterprise in China; and the largest overseas acquisition in Guangzhou since the reform and opening up.

But these highlights talked about in the industry do not touch the core of the acquisition. Li Feng, Assistant of General Manager of Yuexiu Holding Limited, disclosed for the first time of the three breakthroughs in "acquisition subject, maintaining listing and confidential financing" of the Chong Hing Bank acquisition from the perspective of the actual operation at the "First cross-border mergers and acquisitions investment summit" on April 18.

Three breakthroughs in the acquisition

Yuexiu has made three major breakthroughs in the trading case of acquiring Chong Hing. The first is the breakthrough in the subject qualification of the acquisition. Yuexiu Holding Limited acquired Chong Hing Bank through the subject of its non-banking financial institution. Li Feng said that over the past 27 years there was no precedent of local bank merger by non-banking financial institution in Hong Kong. After repeated communication and coincidence with new requirements of Basel Agreement III on bank capital, Yuexiu Holding Limited was eventually approved by Hong Kong Monetary Authority.

Second, the large proportion of acquisition remains listing status. As a general market practice, the change of a major shareholder holding over 50% of stock equity often requires a comprehensive tender offer, which often results in privatization. Li Feng pointed out that, in the face of this situation, Yuexiu clearly expressed the wish to maintain the listing status of Chong Hing Bank in the beginning, in order to make better use of international capital market to promote the growth of Chong Hing Bank. After repeated communication with the regulatory institution and on the basis of ensuring the interests of minor shareholders, a 75% partial offer program was eventually adopted within the system framework of the current regulatory; This program won 99.99 percent of favorable vote at the shareholders meeting of Chong Hing Bank, and successfully maintained the listing status of Chong Hing Bank in the end.

Third, confidential financing. Li Feng pointed out that since the acquisition goal was a listed bank, the acquisition financing must be strictly confidential. Yuexiu contrived carefully. Led by the financial adviser-Nomura Securities, it organized Taiwan's two largest commercial banks—Taiwan Bank and Mega Bank— and DBS Bank of Singapore to make up a bridge loan syndicate with the maximum amount of up to $ 1.045 billion, which is a model of industrial and financial cooperation in the Mainland, Macau, Taiwan and Hong Kong.

"Marriage" with Chong Hing compensates Yuexiu’s financial sector

The implementation background and starting point for this acquisition is Yuexiu’s corporate strategy, especially the strategy for financial sector. Li Feng said that in order to strengthen the financial sector, Yuexiu Finance established the development idea—"to build an international financial holding group with banking and securities as the core, trust and leasing as the important support, and private equity funds and SME financing as featured business".

Yuexiu Financial sector previously had scarce financial license resources in securities, funds, futures, financial leasing, industrial investment, financing guarantees, micro-loans, securities and consulting, and is now actively promoting the reorganization of trust business, but due to the lack of bank business, its financial industry chain needs to be strengthened and supplemented. Therefore, since 2012, Yuexiu Holding Limited has been planning to enter the banking industry by way of mergers and acquisitions.

But the threshold for the establishment or acquisition of commercial banks in China is relatively high and business areas are limited, thus Yuexiu Holding Limited shifted its work emphasis to research on acquisition of a Hong Kong bank. Li Feng said that Yuexiu Holding Limited eventually targeted at Chong Hing Bank on the following two considerations:

First, Chong Hing Bank’s characteristics decided the "high cost-efficiency" of the acquisition. Compared with its counterparts in the industry in Hong Kong, Chong Hing has a moderate scale, simple structure of stock equity, high asset quality, lower loan-deposit ratio, the lowest rate of non-performing loans and wide space for credit growth. It has extensive distribution channels and stable client groups in Hong Kong, with good reputation and brand; In addition, Chong Hing Bank has expertise for SMEs, its ability in services to SMEs in Hong Kong can be copied to domestic market, to expand business opportunities for SMEs of domestic institutions, and improve service ability and gains level of Yuexiu financial sector.

Secondly, Chong Hing Bank has high correspondence with Yuexiu Holding Limited in strategy. Li Feng said Chong Hing had strong complementarities with Yuexiu, and the acquisition was actually a "powerful combination". Chong Hing Bank is a typical Bank Holding Group. In addition to banking business, Chong Hing Bank owns commodity futures, securities, insurance and finance and other financial business platform, with mature technology and rich experience in cross-marketing and business collaboration of different financial formats. It can provide strong support for Yuexiu to build an international finance holding group with banking ad securities as the core, trust and leasing as important support and private equity and SME financing as featured business.

Li Feng finally concluded that the success of acquisition means Yuexiu Holding Limited has included the top ten financial licenses such as bank, trust, securities, futures, funds, financial leasing and small loans. At the same time it also marks Yuexiu Finance’s strategic pattern of international financial holding group with the core of banks and securities has taken shape.