Singapore’s second-biggest lender, OCBC, unveiled a S$1.4 billion offer on Friday (May 10) to buy the remaining stake in insurer Great Eastern Holdings and delist the company.
Singapore’s second-biggest lender, OCBC, on Friday (May 10) announced a S$1.4 billion (US$1.04 billion) offer to buy the remaining stake in insurer Great Eastern Holdings, with the aim of delisting the company.
OCBC, Great Eastern’s biggest shareholder, said it would acquire the 11.56 per cent stake in the insurer that it does not currently own. If it goes through, the deal will give the lender full ownership of the firm.
The offer price of S$25.60 per share represents a premium of 36.9 per cent over Great Eastern’s last traded price of S$18.70, the bank said in a press release.
The company requested a trading halt of shares immediately after OCBC’s announcement. Trading resumed in the afternoon trading session on Friday and the stock surged as much as 39 per cent before closing at S$25.72, up 37.5 per cent for the day. The closing price marked the counter’s highest level since July 2019.
OCBC noted that its latest move is aimed at strengthening its business pillars of banking, wealth management and insurance, as well as optimising its capital to enhance shareholder returns.
“In a fast-growing region that has seen rising demand for products and solutions to enhance and preserve wealth, bringing Great Eastern even closer to OCBC reinforces its long-term vision of becoming the leading wealth management player,” it added.
The acquisition is expected to contribute to earnings, OCBC said, noting how the insurer has contributed an average of about S$700 million annually in net profit to OCBC over the past 10 years. This translates to an average of about 15 per cent of OCBC’s annual net profit over this period.
For the most recent quarter ended March, profit contribution from Great Eastern rose 28 per cent on the year to S$260 million, supported by better investment performance and improved claims experience.
OCBC also highlighted this as an opportunity to “deploy its capital to generate greater returns for its shareholders”.
The lender has been the majority shareholder of Great Eastern for the past 20 years. It previously made an offer to increase its investment in the insurer in 2004 and 2006.
Responding to questions about the timing of its latest offer, OCBC Group CEO Helen Wong described it as “a natural move” as the bank looks to strengthen its wealth management proposition which includes insurance as a “very important pillar”.
Ms Wong added the move was not influenced by recent concerns raised by the insurer’s minority shareholders about the company’s share prices and continued valuation decline.
“Our strategy is always to solidify the wealth management leadership position so acquiring more shares in Great Eastern is an ongoing exercise,” she said at a press conference for the bank’s quarterly earnings.
“But as we said, we always look at our capital position, how to best use it and this is one of the options.”
Asked to elaborate on why the offer was seen as its best way to deploy capital, compared with other acquisitions or distributing dividends to shareholders, Ms Wong replied that the lender is positioning itself for sustainable growth.
“If you just pay out dividends to your shareholders, then you won’t have the capital for future opportunities to grow,” she told reporters and analysts present at the briefing. “We want our growth to be sustainable and for the long term.”
The acquisition of Great Eastern also presents potential further synergies, with minimal “integration risks”, given how the insurer has been part of OCBC’s stable of companies for decades, the CEO added.
The Securities Investors Association (Singapore), or SIAS, commended OCBC for its “proactive response” to the concerns raised by minority shareholders of Great Eastern.
“While the offeror intends to seek a delisting of Great Eastern if the free float falls below 10 per cent, SIAS would like to advise all shareholders to exercise patience and due diligence before making any decision,” it said in response to CNA’s queries.
When contacted, Great Eastern said advice from an independent financial adviser and recommendation from independent directors will be made available to shareholders in “due course”.
“For now at Great Eastern, it is business as usual and we will continue to execute and deliver on our strategic priorities and work closely with our financial representatives, stakeholders and other business partners to meet and serve the needs of our customers across the region,” said group CEO Khor Hock Seng.
“STARTED 2024 ON A GOOD FOOTING”
The announcement comes as OCBC announced a better-than-expected 5 per cent rise in first-quarter profit.
OCBC said its January to March net profit climbed to a record S$1.98 billion from S$1.88 billion a year earlier, driven by stronger operating profit.
That beat the mean estimate of S$1.77 billion, or a 5.9 per cent year-on-year decline, from four analysts polled by LSEG.
Net interest margin, a key profitability gauge for banks, declined slightly to 2.27 per cent during the quarter from 2.30 per cent a year earlier.
“We started 2024 on a good footing,” said Ms Wong. “All our businesses did well and this is reflected in the operating performance across banking, wealth management and insurance.”
For instance, its banking operations hit a record net profit of S$1.72 billion, up 3 per cent year-on-year. It also saw a 1 per cent rise in wealth management assets under management to S$273 billion from a year earlier.
Moving forward, the bank remains positive on the resilience of its key markets in Asia but will keep a close watch on developments around the world, such as heightened geopolitical risks from ongoing wars and the outcome of upcoming key elections, the CEO said.
CLAIMS MISCONDUCT WILL NOT BE REPEATED: CEO
Ms Wong was also asked by CNA about the misuse of medical claims by employees at its private banking arm, Bank of Singapore (BOS).
News of the misuse and dismissals over the matter was reported last month. Three OCBC Group employees told CNA that some staff members were called to disciplinary hearings that lasted “a few months”.
Up to 40 employees were dismissed, a source told CNA. Those involved were found to have submitted claims for bird’s nest, skincare products, supplements and toothbrushes – items that are excluded under the company’s medical benefits.
They were told to pay back the money for these claims. The “more serious cases” had disciplinary outcomes that affected people’s bonuses, CNA was told.
Asked if similar investigations were carried out at OCBC, Ms Wong said the bank “cannot comment on any staff matter”.
“But what we can say is we take how we do things very seriously. If there is any wrongdoing, we investigate … and we investigate thoroughly based on our disciplinary framework and investigation framework,” said the CEO.
“If there (are) any gaps or … anything that we need to do, we have already addressed. So, what we’re saying is, we do not see something like that repeating again.”
OCBC shares finished 1.5 per cent higher at S$14.12 on Friday.
Source: CNA