Great Eastern shares extended gains made last Friday after controlling shareholder Oversea-Chinese Banking Corp offered $1.4 billion to acquire the remaining 11.56% of the shares it did not already own.
Great Eastern shares closed May 13 at $25.85, up 0.51% for the day. This follows a jump of more than a third last Friday to a five-year high after OCBC's offer of $25.60 was tabled. Earlier in the morning of May 13, Great Eastern shares went as high as $26.22.
OCBC shares, meanwhile, gained 0.85% to change hands at $14.24.
The privatisation offer of Great Eastern was made on the same day OCBC announced better-than-expected 1QFY2024 earnings.
OCBC’s offer price of $25.60 represents a 36.9% premium over GEH’s last traded price of $18.70 and premiums of 38.6%, 40.0% and 42.4% over the one-month, three-month and 12-month periods up to and including the last trading date of May 9.
Embedded value
See also: OCBC's offer for GEH opportune following switch to IFRS 17; offer is too low, say minorities
However, OCBC’s offer represents a 30% discount to GEH’s $36.59 embedded value as at end-FY2023.
Is the offer final, or will OCBC revise the offer? OCBC group chief executive officer Helen Wong says she is unable to comment.
According to Wong, a successful privatisation of GEH, based on 100% acceptance at the offer price of $25.60, would add about 0.2 percentage points (ppt) to OCBC’s FY2023 return on equity (ROE).
See also: OCBC ‘not in the business of providing liquidity’ for Great Eastern
OCBC intends to use internal cash to fund the offer, and the bank believes it is “well-capitalised” to do so. As at March 31, the group’s common equity tier-1 (CET-1) capital adequacy ratio (CAR) was 16.2%, up from 15.9% at end-2023 and 15.9% on March 31, 2023.
Calculated from end-2023 figures, the offer would trim OCBC’s CET-1 CAR by 0.6 ppt to 15.3%. After adjusting for FY2023’s final dividend, the pro-forma CET-1 CAR as at end-2023 would fall to 14.5%. Taking 1QFY2024’s figures into account, however, OCBC would be starting from a higher base of 16.2%.
This is still higher than its peers. DBS Group Holdings and United Overseas Bank U11 (UOB) reported CET-1 of 13.9% and 14.7% as at end-1QFY2024, or March 31.
Offer timeline
According to briefing slides shown on May 10, OCBC, as the offeror, will despatch the offer document no later than May 31. Following that, OCBC will despatch the circular to GEH’s shareholders no later than 14 days from the despatch of the offer document.
The closing date of the offer will be no earlier than 28 days from the date of the despatch of the offer document.
See also: OCBC 1QFY2024 net profit up 22% q-o-q, 5% y-o-y to $1.98 bil
Shareholders have long called for OCBC to privatise the separately-listed GEH. In June 2023, OCBC bought 2.3 million GEH shares for nearly $40 million, which took its stake up from 87.9% to its current 88.4%.
The move, which accompanied OCBC’s 1QFY2024 results, came as a surprise. At OCBC's AGM on April 30, the bank’s chairman Andrew Lee did not give a clear indication of OCBC's plans, saying: “Since 2006, the free float of Great Eastern is lesser than 20%. OCBC is not in the business of providing liquidity for another company. We have our own strategic agendas… We have no direct interest in stimulating Great Eastern’s liquidity or share price.”
For 1QFY2024, the bank reported net profit of $1.98 billion for the quarter, 22% higher q-o-q and 5% higher y-o-y. Income growth outpaced the increase in operating expenses, which drove an improvement in cost-to-income ratio (CIR) to 37.1%, while credit costs decreased to 16 basis points (bps).
