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OCBC rights issue expected to be well subscribed

In a press conference in Hong Kong, the lender said it was planning to raise S$3.3 billion, by issuing about 440 million new shares to existing shareholders. 

SINGAPORE: Analysts have said they expect OCBC's rights issue, the announcement of which did not come as a surprise, to be well subscribed, given the 25 per cent discount.

In a press conference in Hong Kong, the lender said it was planning to raise S$3.3 billion, by issuing about 440 million new shares to existing shareholders. At S$7.65 apiece, this works out to a 25 per cent discount on its closing price last Friday (Aug 15).

This will affect OCBC's capital adequacy, but experts also said that the deal is a boost to OCBC's plans to expand in Greater China. Ratings agency Moody's has described the move as "credit positive", while Standard & Poor's said it will not have a negative impact on OCBC's ratings.

Mr Ivan Tan, director of financial services ratings at Standard & Poor's, said: "The purchase consideration for Wing Hang was considerable, it was done at a price to book of 1.8 times. Now assuming if they raised no capital, if they raised no rights issuance, Tier 1 ratio for OCBC is currently 14.7 per cent. That will decline to 11 per cent if they raise no rights issue. Assuming if they raised the full S$3.3 billion, it will increase their Tier 1 to 13.2, which is somewhere comparable to their peers, which is close to where DBS and UOB is."

Wing Hang has branches in Shenzhen, Guangzhou and Macau, and the acquisition - valued at about S$6.2 billion - provides an opportunity for OCBC to consolidate its business operations in North Asia. It is also seen as having strategic benefits for OCBC which has its eyes focused on China.

"The strategy of OCBC is somewhat different. At OCBC's side, they already have a stake in Ningbo Bank and with Wing Hang Bank. Obviously their strategy is to move more into the China markets. You talk about UOB or DBS itself, they are more (focused on) ASEAN markets, like Indonesia and Malaysia. They want to establish a foothold there and try to go further from there," said Mr Ng Kian Teck, deputy head of research at Voyage Research. "So I think different banks have different strategies, they are looking at different markets. And for OCBC, it is definitely to trade more of RMB, maybe Singapore to China and Singapore to Hong Kong."

OCBC's rights issue is the second largest in Singapore's financial sector, behind DBS' S$4 billion issue in 2008. In trade on Tuesday (Aug 19), OCBC shares closed 1.1 per cent higher at S$10.31.