(Yicai) Oct. 10 -- HSBC Holdings, Europe’s biggest bank, has proposed to buy out minority shareholders and take private Hang Seng Bank in a deal that values the Hong Kong lender at almost HKD300 billion (USD38.5 billion).

London-based HSBC is offering HKD155 (USD19.90) per share to privatize Hang Seng Bank, in which it has a 63 percent stake, and delist the unit from the Hong Kong Stock Exchange, the pair announced yesterday. The deal would cost HSBC in the order of HKD106 billion. 

Hang Seng Bank [HKG: 0011] closed up 0.4 percent at HKD150.40 per share today, after surging nearly 26 percent higher yesterday. HSBC [HKG: 0005] fell 0.5 percent to HKD103.50, following a 5.6 percent decline yesterday.

The offer price represents a 30 percent premium over Hang Seng Bank’s closing price on Oct. 8 and values it at a 1.8 times price-to-book multiple, well above the roughly 0.4 times median for comparable Hong Kong-listed peers.

Founded in 1933, Hang Seng Bank is one of the Chinese special administrative region’s oldest local lenders. The announcement said the bank will retain its licensed status under the Hong Kong Banking Ordinance as well as its independent governance, brand identity, market positioning, and branch network.

HSBC framed the privatization as a major commitment to Hong Kong, saying it reflects confidence in the city’s role as an international financial hub and a gateway to the Chinese mainland. It pledged that the deal would unlock investment opportunities and support growth for both HSBC’s Asia-Pacific business and Hang Seng Bank.

Hang Seng Bank’s first-half earnings results showed ongoing pressure from non-performing loans, said Wu Lixian, international securities strategist at Everbright Securities, so given the price premium and the offer’s proximity to recent price highs, many shareholders are likely to accept.

The deal poses different challenges for the parent company, he noted, as it entails a major cash outlay and consolidating the unit’s bad loans could raise HSBC’s own dud loan ratios, factors that are likely weighing on HSBC’s share price.

But in the medium-to-long term, privatization could strengthen the synergies between the two lenders and support HSBC’s efficiency agenda, Wu concluded.

Editor: Emmi Laine