Hang Seng to divest up to 4.99% of Industrial Bank stake

It'll be HK$22.08 per share.

Hang Seng Bank recently announced 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, the sale of 4.99% of IB makes strategic sense for HSB as it boosts core capital, dividend payout, and ROE.

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

Here's more from Barclays:

The remaining 0.88% stake in Industrial Bank 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".

As we highlighted earlier, we believe 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 3.7 ppt to 18%. As a result, we believe 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%.

If the remaining 0.88% stake is sold after the 30-day lock-up expires, CET1 could rise to 18.7% and result in excess capital of ~HK$11.5/share (assuming a 14% CET1).