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Merger of Habubank and Saigon Hanoi Bank

26 Apr

Saigon Hanoi Bank and Habubank Merger

This is a followup to my previous post on the takeover of Habubank (HBB) by Saigon Hanoi bank (SHB). Soon after the rumors of the merger was circulated (and the near doubling of Habubank shares), both banks issued denials. Even the State Bank of Vietnam, whose approval the banks needed to merge, denied giving approval.

On 14/3/2012, Hanoi Building Commercial Joint Stock Bank (HBB) issued documents explaining the news that Sai Gon – Hanoi Commercial Joint Stock Bank (SHB) is acquiring Hanoi Building Commercial Joint Stock Bank (HBB) as follows:
 
This news is inaccurate and groundless, affecting the prestige and operation of Hanoi Building Commercial Joint Stock Bank in particular and the system satety of commercial banks in general, disturbing information on the stock market, which may harm investors’ benefits. In the afternoon on 13/03/2012, the State Bank confirmed on its website that the news the State Bank approved Sai Gon – Hanoi Commercial Joint Stock Bank of acquiring Hanoi Building Commercial Joint Stock Bank is not accurate.– Habubank

On 13/3/2012, on some media, there was news that Sai Gon – Hanoi Commercial Joint Stock Bank (SHB) is acquiring Hanoi Building Commercial Joint Stock Bank (HBB), Sai Gon – Hanoi Commercial Joint Stock Bank would like to disclose the information as follows:
 
SHB is a bank with strong financial potential. In 2011, total assets are VND70,992 billion, profit after tax (after setting up provisions) is VND1,000.962 billion. SHB has just been ranked “Group I” by the State Bank with credit growth rate of 17%/year.
 
According to the State Bank’s policy on restructuring the banking field, SHB is finding some partners to merge into SHB to increase potential, enlarge the scale, and become leading modern and versatile bank in Vietnam and the region. However, the merge of commercial banks including SHB needs the approval of the State Bank and concerned agencies.
 
Besides, as a joint stock bank listed on the stock market, SHB always complies with information disclosure regulations. Thus, whenever there is news relating to the bank’s operation, SHB will announce as regulated by law. — Saigon Hanoi Bank

Notwithstanding this, the trading pattern of the banks told us a different story. While the price of Saigon Hanoi Bank had stayed roughly similar to its price a month ago, Habubank shares had moved up relative to Saigon Hanoi Bank.

As is usual, when in doubt, follow the trading pattern if we want to know if the merger will go through.

Terms of the Deal

Now, we finally have the first confirmation that the deal will be going ahead. As reported by local news website TTVN.vn, Habubank finally disclosed its merger plan with Saigon Hanoi Bank:

Hanoi Building Commercial Joint Stock Bank (Habubank or HBB) has recently disclosed the draft of its merger plan with Saigon-Hanoi Commercial Joint Stock Bank (SHB), the local online newspaper TTVN.vn reported.

According to the merger plan, the newly-formed bank will be named Saigon-Hanoi Commercial Joint Stock Bank (SHB) with the charter capital of 8.866 trillion dong. Habubank will transfer all of its assets, rights, obligations, labors and legal interests to SHB, putting an end to the brand-name Habubank.

The merger plan also specified a share conversion ratio of 1 HBB’s shares for 0.75 SHB share.

Targeted prudent ratios and business results of the merged bank in the following three years are as follows:

Discussion

Of course, submitting the proposal for a merger is just the first step to complete the deal. The state bank will need to followup by giving its blessing. But from the looks of it, the merger will go through.

The takeover of Habubank by Saigon Hanoi Bank will be a significant transaction for the latter. In my opinion, it will also be a very favourable transaction for Saigon Hanoi Bank as well. Currently, the shares of Habubank is only trading at 0.6 of book value while the shares of Saigon Hanoi Bank is more than double that, at nearly 1.5 times of book value. Hence, Saigon Hanoi Bank will be issuing shares at a higher valuation and buying something that is “cheaper” on a book value basis.

The reason why this could be done is because there is much uncertainty on the stuff on Habubank’s books and the possibility of more write downs later on. But there is no denying that Saigon Hanoi Bank is acquiring assets on the cheap.

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Posted by on April 26, 2012 in News, Portfolio, Vietnam

 

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