- POSTED: 27 Jan 2014 22:11
OCBC shares hit a one-year low to close at S$9.44 on Monday -- this follows confirmation by the lender late last Friday that it will extend exclusive talks to buy Hong Kong's Wing Hang Bank to March 3.
SINGAPORE: OCBC shares hit a one-year low to close at S$9.44 on Monday -- this follows confirmation by the lender late last Friday that it will extend exclusive talks to buy Hong Kong's Wing Hang Bank to March 3.
OCBC first announced on December 31, 2013, that it will hold exclusive talks with Wing Hang Bank for a month.
The move is seen by analysts as detrimental to its share price, and they said investors have been selling on fears that fundraising for the deal will dilute the value of the OCBC shares they hold.
The stock is almost 20 per cent off a high of S$11.17 in May 2013.
Analysts said even though OCBC has excess cash -- it reaped almost S$3 billion from selling stakes in Fraser and Neave in 2012 and did not distribute the proceeds to shareholders -- it is unlikely to have enough cash to fund this transaction.
According to reports, OCBC is said to be buying Wing Hang for S$6.4 billion (US$5 billion), valuing the Hong Kong bank at 1.9 times its book value.
Gabriel Yap, executive chairman of GCP Global, said: "And at the same time, they are acquiring more shares in Bank of Ningbo in China. That's another half a billion.
"So if both transactions come to fruition, capital restructuring in terms of new equity raising is going to be the only way to finance.
"I won't be surprised if any new capital raising will probably be in the region of S$8.50 to S$8.80 in order to attract full take up, to help them finance these acquisitions."
Analysts said Singapore's second largest lender is in a difficult situation.
Notwithstanding investors' concern over share price dilution in the short term, it is under pressure -- amid a competitive banking industry -- to position its business for long-term growth.
Karen Loon, Singapore banking leader at PwC, said: "The competition is tough. The macro environment makes things tough for players.
"But we believe those who are able to look through in the longer term, navigate some of the regulatory changes, and actually differentiate themselves -- through looking at longer term trends of technology, of HR, etc -- and manage to think longer term, will be able to do well."
OCBC has explained that it plans to grow its presence in Greater China, one of its four core markets. It sees the region as having "excellent opportunities" in trade, wealth and capital flows.