A new report about a potential major bank sale in Hong Kong made me realize that a widely expected rush to buy locally based lenders in the former British colony never materialized. This latest report that the Hong Kong unit of Bank of China (
3988.HK) is shopping its locally-based Nanyang Commercial Bank might rekindle speculation that a flurry of new sales is coming. But the potential buyers mentioned in the report make such a gold rush look unlikely, indicating local Hong Kong banks may be losing their appeal as acquisition targets for Chinese and other global lenders.
Let's jump right into the latest headlines, which say BOC Hong Kong Holdings (
2388.HK) is looking to sell off Nanyang Commercial Bank in a deal that
could fetch up to $6 billion (HK$46.5 billion). Bank of China reportedly made the decision to sell after deciding that Nanyang and its other Hong Kong-based businesses were competing too much with each other.
What's most interesting about this story is that the sale appears to show that Hong Kong-based banks are losing their attraction for both Chinese and foreign investors. BOC's decision to sell Nanyang is itself a sign of that fading attraction. Additionally, the only named potential buyer in a report on the sale was China's Cinda Asset Management (
1359.HK), which become a publicly listed company about a year ago.
Cinda's business is quite different from traditional banks, as its core specialty is to acquire soured loans and then repackage and sell them off at a profit. The company is closely tied to Beijing, and thus many of the soured loans in its portfolio come from government sources and state-owned enterprises.
The source who disclosed BOC's sale plan tried to put a positive spin on Cinda's interest, saying the Hong Kong bank could become a provider of cheap financing for Cinda to buy up the bad loans that fuel its core business. But that explanation looks a bit flimsy, since Nanyang would still need to lend money at market rates -- even to Cinda -- if it wants to make reasonable profits for its new parent.
The sources also said that some other state-backed institutions in China could be interested in Nanyang, hinting that no other potential buyers had actually come forward yet. Perhaps the lack of interest is partly due to price, as the $6 billion would make such a deal the third biggest Asian bank sale of all time. The largest deal occurred in Australia and was worth $18 billion, and the second largest was Bank of America's (NYSE: BAC) purchase of a stake in China Construction Bank (
0939.HK) for $7 billion in 2008.
