Seng Heng was established in 1972 and acquired by Ho's company Sociedade de Tourismo e Diversoe de Macao (STDM) in 1989. It had assets of HK$24.6 billion and profits of HK$302 million for the latest financial year ended December 31, 2006. It has nine branches and 47 ATMs in Macau. The sell-side was advised by Credit Suisse.
The net asset value of Seng Heng Bank as at June 30, 2007 was HK$1.80 billion. The price agreed between the sellers and ICBC is based on an NAV assumption of HK$1.86 billion and allows both sides to adjust the price to reflect upward or downward revision in the assumption. Goldman Sachs advised ICBC.
The price represents an NAV multiple of about 3.1 times, using the assumed NAV, and represents an earnings multiple of around 19 times trailing earnings.
The deal can be benchmarked against the August 2006 acquisition by China Construction Bank of Bank of AmericaÆs 14 Hong Kong and three Macau branches for HK$9.7 billion. The price paid by China Construction Bank represented a book value multiple of 1.32 times net assets and 18.1 times trailing earnings.
ICBC will pay HK$3.98 billion for the 70% controlling stake in Seng Heng Bank owned by STDM, Stanley HoÆs flagship gaming, recreation and property development company. (Ho is Seng HengÆs chairman and managing director.)
Additionally, ICBC will pay HK$565 million to Seng Heng's chief executive officer, Patrick Huen, for another 9.93% in equity. Huen will continue to own a 20.07% stake in the bank and be entitled to proportionate representation on the board.
Huen has agreed to a three-year lock-up for his residual holding and has negotiated a tag-along right should ICBC decide to dilute its ownership below 51% during the lock-up. After three years, ICBC will have the first right of refusal on HuenÆs shares at the same price at which he can sell them to a third party. ICBC also has a call option on HuenÆs shares at the end of three years at a price as per a pre-determined formula.
The consideration will be paid in two tranches: 85% upon completion and the balance of 15% will be placed in an escrow account for six months post completion. The escrow account funds will be used to settle any claims or arbitration against the sellers and the reduced amount will then be paid to the sellers. Completion is expected by March 2008 and both the sellers have agreed to a non-compete for a period of three years.
The announcement follows one day after the opening of the Venetian Macao, one of Asia's largest casino resorts, which is expected to reinforce the standing of Macau as a premier gaming destination. Some speculation has arisen that the acquisition represents a way for China to exercise tighter control on MacauÆs gaming industry and its cash inflows and outflows.
That may well be the case but it is equally true that for ICBC, which has 2.51 million corporate banking customers and 180 million personal banking customers, the acquisition gives it a strong foothold in a region which seems set to continue to grow and takes the bank nearer to its stated goal of being a ôfirst-class international financial institutionö.