US hedge fund Elliott Management has launched legal action against Hong Kong’s Bank of East Asia in what promises to be one of the most high-profile battles by an activist investor in the region.
Five funds linked to Elliott are seeking to compel BEA’s directors to hand over internal papers covering their decision last September to sell 222m new shares – just under a 10th of the company — to Japanese megabank Sumitomo Mitsui Financial Group. Elliott currently holds around HK$1.8bn (US$232m) worth of BEA shares.
Critics of the deal have said BEA did not need to raise fresh capital and merely diluted existing investors. The bank had a tier-one equity capital ratio — a measure of financial strength — of 11.6 per cent in the first half of last year, up from 11.4 per cent at the end of 2013 and solidly in the middle of banks’ capital levels globally.
At a preliminary hearing on Wednesday, a Hong Kong judge set a timetable for both sides to present their cases formally. That hearing, which is expected to last just one day, is to take place within eight weeks.
BEA’s share sale is the latest in a series that have helped the founding family, headed by chairman David Li, maintain control in spite of owning less than 7 per cent of the stock outright. Spain’s Caixabank holds 18 per cent and SMFG has 9 per cent.
A further 14.5 per cent is held by Malaysia’s Quek family, thought to be hostile to the Li family and whose empire includes the Kuala Lumpur-based Hong Leong Bank.
BEA, which has a market capitalisation of $9.7bn, is the only sizeable family-owned Hong Kong bank not yet swallowed up by a bigger institution — something generally attributed to Mr Li’s boardroom skills and connections.
Other directors named in Elliott’s action include Richard Li, entrepreneur and son of Li Ka-shing, and Peter Lee, son of Lee Shau-Kee. The fathers are among Asia’s five richest men.
Activist investors have found influencing Asian companies hard going, coming up against complex webs of family-controlled companies, boards unprepared to engage, and local shareholders uninterested in pushing for better performance.
Last year, Elliott scored a notable success when Singaporean developer CapitaLand raised an offer to buy out minority shareholders in its listed shopping mall unit. However the hedge fund failed in its efforts last summer to make OCBC, the Singapore bank, raise its $5bn offer for Wing Hang, a rival to BEA.
Elliott’s targets elsewhere have included pursuing Argentina through the US courts for full payment of bonds on which the country defaulted in 2001 and taking Vodafone to court in Germany to demand it pay more for its 2013 acquisition of Kabel Deutschland.
The share sale to SMFG, which is registered in the US as a bank holding company, is still being finalised and will need to be approved by regulators including the US Federal Reserve Board.
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