HSBC shares sink on play to take control of Hong Kong bank
HSBC shares tumbled on Thursday morning as the bank laid out plans to suspend its buyback program in order to buy out minority shareholders in Hong Kong’s Hang Seng Baak.
The FTSE 100 banking juggernaut has offered to pay HK$155 per share for the 36 per cent not already owned by the bank. The proposal values the stake at HK$106.1bn (£10.7bn).
The offer also represents a 30.3 per cent premium over the last closing price of HK$119.00.
HSBC’s shares in London sank over six per cent to lows of 997.40 as markets opened.
Despite the takeover, HSBC intends for the nearly 100-year-old Hang Seng Bank to retain its separate banking license, brand, governance, and branch network in Hong Kong.
Upon the scheme becoming effective, Hang Seng would become a wholly-owned subsidiary of HSBC Holdings, and its shares will be withdrawn from the Hong Kong Stock Exchange.
However, the group expects a capital impact of approximately 125 basis points on its CET1 ratio – a key indicator of a bank’s financial health, – which it plans to restore through organic capital generation.
HSBC weighs on FTSE 100
The bank fell over four per cent in Hong Kong on the news.
Kathleen Brooks, research director at XTB, said: “This is a risky move, and the HSBC share price could take a knock during the London session later this morning.
“This deal weighed on the Hang Seng index, which is under-performing its Asian peers on Thursday.”
The FTSE 100 was down 0.36 per cent in early trading – also burdened by Lloyds Banking Group announcing it was “likely to be required” to increase its motor finance provision.
HSBC is the index’s second most valuable company with a market cap of near £180bn, meaning the smallest of movements from the banking giant will have larger impacts on the index’s position.
The proposal is non-negotiable and conditional on the requisite approval of at least 75 per cent of the shareholders and the sanction of the scheme by the High Court.