Singapore's OCBC nears $5bn deal for Hong Kong's Wing Hang Bank OCBC of Singapore is closing in on a deal for Wing Hang Bank, one of Hong Kong's last remaining small family-owned banks, that will value the business at more than $5bn, according to people with knowledge of the talks. Wing Hang said it had entered an exclusivity agreement with Singapore's second-biggest bank by market value that will give them until January 31 to finalise the terms of a deal. If an offer materialised, the hurdle of Hong Kong regulatory approval would still need to be cleared, the bank said. The expected price tag is lower than Hong Kong investors had expected, but Singapore analysts have nevertheless expressed concern that OCBC may be paying too much for its first big overseas deal, which will give it access to the growing offshore renminbi market. Wing Hang shares dropped as much as 6 per cent in early trading in Hong Kong but were down 1.4 per cent at HK$115.60 when they were suspended on Monday. OCBC shares were down 1.5 per cent at S$9.87 when they were suspended. Shares in the two groups will resume trading on Tuesday. The last Hong Kong family-owned banks have been attracting renewed interest in recent months with 75 per cent of Chong Hing, the smallest of them, being sold for $1.5bn, or 2.3 times its book value, in October. Wing Hang announced in September that its biggest shareholder, Bank of New York Mellon, and the controlling Fung family had been approached about selling their combined 45 per cent stake and that it had entered talks with third parties. If OCBC agrees an offer for that stake it would be obliged to make a general offer for all shares. OCBC has been in exclusive talks since December 31 after other potential bidders including Anbang Insurance of China, ANZ of Australia and UOB of Singapore lost interest, according to bankers with knowledge of the situation. Wing Hang investors had hoped for a similar multiple to book value as achieved by Chong Hing, but the expected price tag will value the Hong Kong lender at less than two times its estimated HK$67.50 book value per share for this year. We struggle to see how an acquisition of Wing Hang will generate a double-digit return on investment on a three-to-five-year timeframe Stephen Andrews, UBS analyst in Singapore Before Chong Hing, other Hong Kong banks had gone for much higher multiples. Wing Lung was bought by China Merchants in 2008 for more than three times book value, while DBS paid a similar multiple for Dao Heng in 2001. DBS's aim was to use its Hong Kong base as a stepping stone into China. However, it has failed to make any great headway with branch openings or business growth on the mainland and has been forced to twice write down the value of Dao Heng. Stephen Andrews, a UBS analyst in Hong Kong, said that acquirers of Hong Kong banks have historically struggled to make decent returns and warned that they expected any deal by OCBC would need to be funded by a "sizeable capital raising." "We struggle to see how an acquisition of Wing Hang will generate a double-digit return on investment on a three-to-five-year timeframe," he said. Wing Hang would boost OCBC's China-related loan book to 25 per cent of its total loans from the current 15 per cent, Mr Andrews said. That compares with about 35 per cent for DBS, OCBC's larger Singapore rival. "Singapore banks have been beating the drum on their China business," said Kevin Kwek, analyst at Bernstein Research in Singapore. However, he also questioned whether OCBC was overpaying for a business in a market where rivals have struggled to grow their acquisitions.