[HONG KONG] Private equity firm Permira has emerged as the preferred bidder to buy Bank of East Asia Ltd's share registry unit Tricor Holdings for between US$750 million and US$800 million, sources said on Tuesday, after six months of bidding that attracted the interest of top Chinese insurers among others.
No deal has been signed yet but Permira and Bank of East Asia are in advanced talks to reach an agreement, people familiar with the matter said.
Wide interest in the auction and Permira's robust bid reflect the scarcity of sizeable deals for private equity firms, which are sitting on an estimated US$100 billion of undeployed cash in Asia.
Bank of East Asia, run by the founding Li family, is under pressure from investor Elliott Management which has been agitating for the sale of the bank, and the lender is hoping the sale of Tricor will help win the support of shareholders in its battle with the US hedge fund.
Permira, which manages 31 billion euros (S$47.3 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.
Tricor provides corporate services and is attractive to private equity firms due to its stable and steady cash generation. Permira's bid would value Tricor at about 15 times its core earnings, which totalled about US$55 million last year, Reuters previously reported.
Permira is expected to fund the deal with about US$450 million in equity funds and the rest from borrowed money, the people said. HSBA and Japan's SMBC are among the banks providing debt financing, the people added.
But some people with direct knowledge of the bidding process were surprised by Permira's aggressive offer for the business. "It's a punchy bid especially when you consider Permira doesn't have any similar business in its portfolio, which means there is little synergies to extract," one of the sources said.
Bank of East Asia and Permira declined to comment.
Bank of East Asia has secured about five final bids, including offers from Vistra Group, Ping An Insurance Group of China and Permira among others.
Elliott, which owns 7 per cent of Bank of East Asia, started legal proceedings against the bank in July over a share issue.
Shares in the bank have jumped 12 per cent this year, nearly double the gains recorded for the benchmark Hang Seng Index .
The Hong Kong bank announced plans to review its 75.6 per cent holding in Tricor in February. Hong Kong port operator NWS Holdings Ltd, backed by billionaire Cheng Yu-tung, owns the remaining stake and is also considering selling out.
Like several other financial institutions, Bank of East Asia has been hit by regulatory challenges and a slowdown in the China and Hong Kong economies.
The bank posted a 37 per cent drop in half-yearly profit last month, hit by a surge in loan impairment losses. It has been looking to sharply cut its operational costs and retreat from non-core businesses to shore up profitability.
A deal would mark the first major sale of any business by Bank of East Asia, which was established nearly a century ago. 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 and Standard Chartered Plc.