Hang Seng Bank's 4.99% stake sale predicted to result to HK$7.6b gain

Stake shall be sold to institutional investors.

Hang Seng Bank announced recently that it is selling up to 4.99% of its 5.87% stake in Industrial Bank to institutional investors for RMB16.8bn or RMB17.68/share (HK$22.08/share).

According to a research note from Barclays, further, it believes the sale of IB makes strategic sense for HSB because IB is a drag on capital as a full deduction against core Tier 1 under full implementation of Basel III.

The 4.99% sale will result in a one-off gain of ~HK$7.6bn and fully-loaded CET1 to rise by 3.8% to 18%. As a result, Barclays believes that there is potential for HSB to pay out a special dividend of c.HK$10/share and still be able to maintain a fully loaded CET1 of 14%.

Barclays notes that HSBC, which owns 62.4% of HSB, will also benefit from HSB’s 4.99% sale of IB, which results in a 17bp boost to its FY15E CET1.

Here's more from Barclays:

HSB previously sold 5% out of its 10.87% stake in IB in February 2015 and the 90-day lockup on the remaining 5.87% stake recently expired on 10 May 2015.

The remaining 0.88% stake of IB is subject to a lock-up period of 30 days. Hang Seng Bank stated that the sale is “an opportunity to realize part of its investment in Industrial Bank, taking into account the current market conditions in the A-share market and the Bank’s long-term strategic objectives, and to strengthen the Bank’s regulatory capital position and ability to meet future regulatory requirements” and the sale proceeds will be used “to support future business expansion and for other purposes as deemed appropriate”.