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OCBC announces S$3.3b rights issue to strengthen capital

The rights issue follows the bank’s recent acquisition of Hong Kong’s Wing Hang Bank in a deal worth about US$4.95 billion.

SINGAPORE: Oversea-Chinese Banking Corp (OCBC), Singapore's second-biggest lender, plans to raise S$3.3 billion via a rights issue to strengthen its capital following its recent acquisition of Hong Kong's Wing Hang Bank in a deal worth about US$4.95 billion (S$6.16 billion).

The bank said early on Monday (Aug 18) it will sell 440 million shares at S$7.65 a share, which is a 25 per cent discount to its last share price of S$10.20 on Friday. The offer will be made to shareholders on the basis of one rights share for every eight existing shares held.

OCBC successfully gained control of Wing Hang last month, giving it a bigger presence in Greater China. The bank currently derives the bulk of its business in Singapore, with Malaysia and Indonesia accounting for the bulk of its international business.

Merrill Lynch, HSBC and JPMorgan are joint lead managers and underwriters for the deal.

OCBC is excited about the Wing Hang deal which will give it 120 branches in Hong Kong, Macau, China and Taiwan. The deal also gives OCBC a chance to grow its yuan-denominated business.

"It will increase our exposure by 10 per cent in the Greater China region. And we're comfortable with that increase. With respect to the return on equity, this acquisition will be ROE and earnings per share accretive in 3 years time," said Mr Samuel Tsien, Group CEO of OCBC Bank.

OCBC's management has set aside up to S$50 million to integrate Wing Hang's operations. No redundancies are planned but the bank may look to sell non-core assets.

Mr Tsien said: "We have always continued to look at non-core assets and to look for divestment opportunities for non-core assets. But it is really from the non-core assets side that, which is not part of the financial services activity that we're engaged in. For those non-core assets, we'll continue to look for opportunities to divest them, not in a hurry as long as they achieve the right value."

After the rights issue, OCBC's Tier One capital ratio, a measure of the bank's financial strength, will stand at 13.2 per cent. Once Basel III bank capital rules are fully applied, its Tier One will be 10.2 per cent - comfortably above the 9 per cent Basel III level - but OCBC still lag behind domestic rivals.

"Obviously, capital raising continues to be an option, but what we prefer to do instead is to organically retain our capital, and the application of the script dividend scheme could be one area that we will continue to explore," said Mr Darren Tan, Chief Financial Officer of OCBC Bank.

In a stock market filing in Hong Kong, Wing Hang Bank has proposed to change the company name to "OCBC Wing Hang Bank Limited", so as to align with the corporate identity of OCBC Bank. OCBC shares in Singapore closed flat at S$10.20 on Monday.