OCBC’s S$3.3b rights issue seen as a ‘credit positive’ move

SINGAPORE — Oversea-Chinese Banking Corp announced yesterday plans to raise S$3.3 billion in a rights issue to strengthen its financial position following its pricey takeover of Wing Hang Bank in Hong Kong, a move analysts view as positive for the Singapore lender as it steps up expansion in the Greater China market.

OCBC will issue about 440 million new shares to existing shareholders at S$7.65 apiece, a 25 per cent discount on its closing price last Friday, said its chief financial officer Darren Tan. One rights share will be offered for every eight held.

A fund-raising exercise by OCBC was widely expected after the bank sealed its acquisition of Wing Hang at about US$5 billion (S$6.2 billion) in cash, raising concerns over its Tier 1 capital adequacy ratio (CAR), a measure of its financial strength.

OCBC’s Tier 1 CAR will be 13.2 per cent after the rights issue, the bank said yesterday, prompting Moody’s Investors Service to call the move “credit positive”. Moody’s Investors Service had as recently as April placed OCBC on review for downgrade, citing the financial impact of the Wing Hang acquisition.

Yesterday, Mr Eugene Tarzimanov, Moody’s senior credit officer for its Asia-Pacific financial institutions group, told TODAY: “The rights issue will stabilise OCBC’s capital profile to a level that we consider strong, and the bank has now come out of the acquisition with a capital ratio that is still in line with highly-rated peers.

“At 13.2 per cent, OCBC’s Tier 1 CAR is technically the lowest compared with DBS and UOB, but keep in mind that Singapore banks’ capital ratios are already larger than those of banks in other major Asian economies. OCBC’s ‘lowest’ will still compare favourably with some of the other large, highly-rated banks globally.”

OCBC’s rights issue is the second largest in Singapore’s financial sector — behind DBS’ S$4 billion issue in 2008, Bloomberg Intelligence data showed. It follows two previous Tier 2 subordinated notes issues by OCBC in April and June, totalling US$2 billion.

With its reserves rebuilt, OCBC is looking to speed up the integration of Wing Hang’s franchise in Hong Kong and in Guangdong, where the bank expects to tap business opportunities across the thriving Pearl River Delta. “We’ll be using the Wing Hang platform to capture the increasing trade and investment flows between Greater China and South-east Asia,” said OCBC CEO Samuel Tsien yesterday.

To this end, OCBC will use Wing Hang to increase its business to Chinese small and medium and state-owned enterprises and offer them cross-border banking services, Mr Tsien said, adding that more wealth and treasury products are on the cards for the region’s business and retail consumers. OCBC is also studying a potential expansion of its life insurance subsidiary Great Eastern into Greater China.

“The integration effort has already started and the synergy value will be able to be realised, in my mind, starting from day one,” he said, adding that actual return on equity will only be accretive to earnings three years later.