Source: Sharecast
HSBC, which owns around 63.3% of Hang Seng Bank, said it has offered HK$155 a share for the shares it does not already own. This is a premium of about 30% to the last closing price.
"The proposal is in line with HSBC's strategic priority of growing its business in Hong Kong and becoming more simple and agile," it said. "The privatisation will enable HSBC to better capitalise on growth opportunities in Hong Kong, fully utilising both the HSBC Asia Pacific and Hang Seng Bank franchises."
HSBC expects the deal to be accretive to earnings per share and said it continues to target a dividend payout ratio of 50% of earnings per ordinary share for 2025. However, it also said it expects an adverse day one impact on the CET1 ratio of around 125 basis points.
The bank expects to restore the CET1 ratio to its target operating range of 14% to 14.5% through a combination of organic capital generation and the suspension of any further buybacks for three quarters.
HSBC chief executive Georges Elhedery said: "Our offer is an exciting opportunity to grow both Hang Seng and HSBC. We will preserve Hang Seng’s brand, heritage, distinct customer proposition and a branch network, while investing to unlock new strengths in products, services, and technology to deliver more choice and innovation for customers.
"Our offer also represents a significant investment into Hong Kong’s economy, underscoring our confidence in this market and commitment to its future as a leading global financial centre, and as a super-connector between international markets and mainland China.
"This proposal fully meets our criteria for value-accretive investments: it aligns with our strategy, enhances growth and scale, does not distract us from organic growth, and delivers greater shareholder value than buybacks.
"Together, HSBC and Hang Seng form a well-positioned platform with two iconic banking brands working side by side to deliver lasting value for customers, employees, and shareholders."
At 1330 BST, HSBC shares were down 4.5% at 1,015p.
Russ Mould, investment director at AJ Bell, said: "Like a toddler who has been told they can’t have another biscuit, HSBC shareholders are stamping their feet on news they won’t be getting any share buybacks for the next few quarters. The bank plans instead to put its cash towards buying out minority investors in Hong Kong lender Hang Seng Bank.
"This is a key plank of HSBC’s wider restructuring plan. However, given it is a tidying-up exercise it is unlikely to excite the market too much, particularly as Hang Seng has been hit by a property slump in Hong Kong.
"Chief executive Georges Elhedery’s plan to reshape the business has moved with pace since he took charge just over a year ago, with the company winding down certain investment banking operations in the US and Europe and pulling out of certain markets. The bank has made generous capital returns, which are about to get a fair bit less generous, and there has been a positive sector backdrop with most banking shares enjoying strong gains over the past year.
"In the context of a continuing pivot towards Asia, HSBC’s latest deal has logic. But along with the recent exit of chair Mark Tucker, the poor reception to it represents perhaps the biggest challenge Elhedery has faced at HSBC to date."
Shore Capital, which rates HSBC at 'hold', said: "It will take time to work through this announcement and interpret the detail. However, we think that this could possibly be a politically-motivated transaction, as much as a financially-motivated one, given most of the minority stake is held by HK/Chinese retail investors, while noting the group already had control of the business, so this is not about driving out synergies and savings.
"With that in mind, the acquisition multiple looks punchy, in our view, relative to the profitability and return on equity generated by the business."
