HSBC has announced a proposal to fully privatize its Hong Kong subsidiary, Hang Seng Bank, for HK$106.1 billion ($13.6 billion). This move comes as Hang Seng Bank has been significantly impacted by the downturn in Hong Kong's commercial property market, leading to a substantial increase in non-performing loans. The offer represents a 33% premium over Hang Seng Bank's undisturbed 30-day average closing price of HK$116.5 per share, and is more than its highest share price in 3.5 years, valuing Hang Seng Bank at HK$290 billion, or 1.8x its 1H25A price-to-book multiple.
The privatization is seen as a way for HSBC to directly address Hang Seng Bank's growing bad real estate debt. Reports indicated that HSBC had already intervened to push Hang Seng Bank to offload over $3 billion in property-backed loans due to an 85% year-on-year surge in soured debt. Full ownership would allow HSBC to centralize workout strategies, manage loss recognition against its broader earnings, and avoid public market scrutiny of impairments.
HSBC plans to fund the acquisition from its own financial resources. The proposal is expected to have an initial capital impact of approximately 125 basis points on HSBC's CET1 ratio. However, HSBC anticipates restoring its CET1 ratio to its target range of 14.0%-14.5% through organic capital generation and by pausing share buybacks for three quarters following the announcement. The current share buyback announced on July 31 will continue as planned, and HSBC maintains its target dividend payout ratio of 50% for 2025 earnings, excluding notable items.
