Thursday, 19 July 2012

Special dividend hopes drive OCBC share price

[SINGAPORE] OCBC's share price yesterday surged to its highest in almost a year, on the prospect of a possible special dividend for shareholders.
But analysts say the bulk of the proceeds from the sale of OCBC Bank and its listed subsidiary Great Eastern Holdings' (GEH) stakes in Fraser & Neave (F&N) and Asia Pacific Breweries (APB) are likely to be used to grow OCBC's main financial businesses.
News of the $3.2 billion sale of OCBC and GEH's combined F&N stake of 18.1 per cent and APB stake of 8 per cent to Thai Beverage and another company drove OCBC's share price to a peak of $9.52 around noon yesterday.
The counter closed at $9.49, up 19 cents or 2.04 per cent, after almost 12 million shares changed hands.
GEH's shares gained 18 cents, or 1.31 per cent, to close at $13.86, after hitting $14 during the day.
OCBC's estimate of a total post-tax gain of $1.15 billion for the group, including gains from GEH's disposal, works out to 34 cents per OCBC share.
A portion of this may be paid out as a special dividend, but analysts say shareholders probably will not get the lion's share of proceeds. Said DBS Vickers analyst Lim Sue Lin: "Assuming banks remain on capital conservation mode, OCBC may well use these one-off gains to boost their capital ratios."
Gains from such investments are recognised as Tier 1 capital, and Ms Lim estimates that sales proceeds will add 50 basis points to OCBC's Tier 1 capital adequacy ratio (CAR), which was 11.8 per cent in March.
OSK DMG analyst Leng Seng Choon estimates, based on the assumption of a FY2012 Tier 1 CAR of 15.1 per cent, that OCBC can pay out $0.9 billion in special dividends or 26 cents per share. This, he expects, would be the upper limit and any special dividend dished out would be smaller.
Most of the proceeds are expected to be re-invested to grow the bank's core financial businesses.
CIMB research head Kenneth Ng noted that in the past, OCBC's divestments were eventually matched with investments in its core business, such as a larger stake in GEH, Bank NISP, Bank of Ningbo, and what is now its private bank, Bank of Singapore.
He reckons that OCBC may use sale proceeds to launch a third privatisation offer for GEH, after failing twice in 2004 and 2006.
Other possibilities include expansion in China through GEH, Bank of Ningbo or new concessionaires, as the China-Singapore free trade agreement has smoothened Singapore banks' China expansion plans.
While this is the first major corporate deal since Samuel Tsien took over as OCBC's chief executive in April, a deal likely initiated by the buyer does not shed clear light on the new management.
"What is clear is that OCBC is now more institutionalised and not sentimental about holding on to old legacy assets," Mr Ng said.
Looking beyond the "knee-jerk" positive share price reaction yesterday and what will likely be stunning Q3 results if the deal closes within the quarter, Mr Ng said this one-off hike in book value does not change concerns over OCBC's earnings volatility.

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