Following in the wake of its merger last year with OUB to become Singapore's biggest bank, UOB is set to take private a couple of listed subsidiaries.
The subsidiaries in question are Overseas Union Trust (of which it owns 52.86%) and Industrial Commercial Bank (of which it owns 87.45%). The banks have a collective net asset value of S$1.25 billion and UOB will pay out S$168 million to privatize them and buy out minorities.
ING will act as independent financial advisor to the board, and will give a fairness opinion on the offer.
On the surface, UOB seems to be putting its house in order and tidying up its organization structure, readying for more competition from foreign banks. ICB is a fully licensed bank with 10 branches, that lends to small and medium sized enterprizes. OUT is basically a consumer finance company with a strong business in running nominee accounts.
However, what is probably more interesting about the situation is that UOB will gain access to around S$1 billion of new tier one capital. Given that bankers say it already has too much tier one equity capital (especially relative to DBS and OCBC), this must augur something. Either the bank will have to return some capital to shareholders via a buyback or else look to acquire.
UOB is known to be interested in following DBS into the Hong Kong market, and observers say it has the capacity to buy a large bank in Hong Kong and write the premium it pays over book value off against its plentiful tier one capital.
M&A bankers have started to say that a number of Hong Kong family banks are now seriously considering offers, as they realise that conditions in the local market are getting worse by the month. The major targets for a bank like UOB would be Wing Hang (the Fung family), Wing Lung (the Wu family) and Dah Sing (the Wong family). Of course, David Li's Bank of East Asia would be the biggest and most glorious deal, but Li has repeatedly said he is an acquiror not a seller.
Bankers also say that UOB could easily raise $2 billion of tier two capital if necessary.
As for ING, this is the fourth major independent financial advisory role it has won, and is becoming something of a speciality.