Hong Kong-based Bank of East Asia (0023.HK) said it has agreed to sell its share registry arm Tricor Holdings to private equity firm Permira for HK$6.5 billion ($837.91 million) in a deal that will bolster the lender’s capital reserve.
Tricor provides corporate services and its stable and steady cash generation is attractive to private equity firms. Permira’s offer values Tricor at about 15 times its core earnings of about $55 million last year.
The all-cash deal marks the first major sale of any business by Bank of East Asia, which was established nearly a century ago and whose offerings include corporate and retail banking, wealth management and investment services.
Bank of East Asia announced plans to review its 75.6 percent stake in Tricor in February this year. Hong Kong port operator NWS Holdings Ltd, backed by billionaire Cheng Yu-tung, owns the remaining stake and is also selling out.
The bank, like several other financial firms, has been hit by regulatory challenges and a slowdown in the Chinese and Hong Kong economies. It posted a 37 percent drop in half-yearly profit, hit by a surge in loan impairment losses.
The cash generated from the transaction will improve Bank of East Asia’s capital position, and will be used for “strategic opportunities” relating to its core banking business, the lender told the stock exchange in a statement on Wednesday.
The bank is likely to book a profit of about HK$3.1 billion after the divestment, after deducting relevant transaction costs and expenses, and the carrying amount of Tricor of about HK$1.6 billion on the book of the bank as of end-August, it said.
Reuters reported last week Permira emerged as the preferred bidder to buy Tricor for between $750 million and $800 million, after six months of bidding that attracted the interest of top Chinese insurers, among others.
Permira, which manages 31 billion euros ($34.8 billion) of investments globally, emerged as the dark horse in the auction in which Vistra Group, a business owned by Baring Asia Private Equity, was seen as the front runner.
While several Hong Kong-based family-owned banks have sold out due to deteriorating market conditions, Bank of East Asia has survived as an independent bank in a market that is dominated by HSBC (HSBA.L) and Standard Chartered Plc (STAN.L).
The bank, run by the founding Li family, however, has been facing pressure from activist investor Elliott Management which has been agitating for the sale of the bank and in July filed a lawsuit against the bank over a share placement.
The dispute has pitted the hedge fund founded by billionaire Paul Singer against the bank’s chairman and former politician David Li, whose grandfather founded the bank and whose family is among the city’s best connected.
Goldman Sachs (GS.N) acted as financial advisor to Bank of East Asia and NWS Holdings, while HSBC (HSBA.L) advised Permira on the deal.