HONG KONG, Oct 28 — Chong Hing Bank Ltd shares tumbled the most in five weeks as trading in the stock resumed after the Hong Kong lender accepted a US$1.5 billion (RM4.72 billion) takeover bid from Yue Xiu Group.

Chong Hing sank 6.3 per cent to HK$35.05 (RM14.17) as of 9:50am local time, the biggest intraday drop since September 23. Yue Xiu is offering HK$35.69 a share for 75 per cent of the bank, less than the HK$37.40 the stock traded at before the halt, according to a joint statement on October 25.

“We believe that Chong Hing Bank’s share price will return to levels consistent with normal banking operations” without any M&A premium, Steven Chan, a Hong Kong-based banking analyst at Maybank Kim Eng Securities Pte, wrote in a report today. The stock may fall to HK$18.31, he said.

The stock jumped 173 per cent since Lau Wai-man was named as the first chief executive officer from outside the founding Liu family on November 28, giving the lender a valuation 69 per cent higher than the average for the largest Hong Kong-traded banks. The first acquisition of a Hong Kong lender since 2009 will give Yue Xiu, controlled by the government of the southern Chinese city of Guangzhou, a network of 53 branches and help it seek funding outside mainland China.

Chong Hing wants to sell its headquarters to its parent, from which it will pay a HK$4.5195 per-share dividend to investors accepting Yue Xiu’s bid, according to the statement.

The lender’s shares were suspended for two days after a 7 per cent surge on October 23 following a Bloomberg News report that the bank was nearing a deal with Yue Xiu. The bank traded at 2.2 times its book value, more than the average multiple of 1.3 for the 16 largest bank stocks listed in Hong Kong, data compiled by Bloomberg showed at the end of last week.

Trading company

Yue Xiu, founded in 1985 by Guangzhou as a trading company for Hong Kong and Macau, needs approval from the Hong Kong Monetary Authority to buy the stake in Chong Hing Bank, according to the statement. Companies controlled by the Liu family will sell shares equal to about 51 per cent of the bank.

The Chinese firm, which operates in businesses including real estate, securities and transportation infrastructure, said it intends to keep Chong Hing’s stock exchange listing.

Nomura Holdings Inc is advising Yue Xiu, according to the statement. UBS AG is Chong Hing Bank’s adviser.

Hong Kong’s role as an international centre for trade in yuan has attracted Chinese financial institutions seeking to expand abroad. China Merchants Bank Co paid US$4.7 billion for the Wu family’s Wing Lung Bank Ltd. in a deal completed in 2009.

The increasing integration of Chinese and Hong Kong firms was driven by increased cooperation between the city and the mainland’s economy, the internationalization of China’s currency and Hong Kong’s development as an offshore yuan centre, according to a section in the October 25 statement explaining the reasons for Yue Xiu’s offer.

Yuan lending

Outstanding loans in Hong Kong denominated in the mainland’s currency surged to 115.4 billion yuan (RM59.6 billion) in August from 1.8 billion yuan in 2010, HKMA data show. Yuan- denominated debt securities, known as Dim Sum bonds, jumped to 294 billion yuan at the end of June from 55.8 billion yuan in 2010.

Chong Hing Bank will sell its headquarters on Des Voeux Road in Hong Kong’s city centre to Liu Chong Hing Investment Ltd for HK$2.23 billion, according to the statement.

The lender, founded in 1948 as Liu Chong Hing Bank Ltd, dropped the family name in December 2006 to “more accurately reflect the public nature of the bank,” according to its website. Lau replaced Liu Lit-chi, a family member who had spent more than 50 years at the bank.

Chong Hing’s network of 51 branches in Hong Kong compares with more than 260 at BOC Hong Kong Holdings Ltd, the Bank of China Ltd unit that’s the biggest local lender. Chong Hing also has one branch each in Macau and mainland China.

Family banks

The number of publicly traded family-run banks in Hong Kong has fallen to four from six more than a decade ago after China Merchants bought Wing Lung and Public Bank Bhd of Malaysia took over Asia Commercial Bank. In addition to Chong Hing, Bank of East Asia Ltd, Dah Sing Banking Group Ltd. and Wing Hang Bank Ltd are the family lenders.

Wing Hang’s stock surged 37 per cent in Hong Kong trading through last week from September 16, when the bank said its largest shareholders were in talks to sell their shares. The Fung family, its affiliates and Bank of New York Mellon Corp. together own about 45 per cent of the company.

Oversea-Chinese Banking Corp., Southeast Asia’s second- largest lender, is considering a bid for Wing Hang, people familiar with the matter said October 24. Singapore-based OCBC had been studying an offer for the Hong Kong bank for more than two weeks, one of the people said.

Cheaper stocks

News flow on mergers and acquisitions “will continue and should be a positive catalyst” for smaller bank stocks, Franco Lam and Tracy Yu, Hong Kong-based analysts at Deutsche Bank AG, wrote in an October 25 report. Dah Sing Bank and its parent Dah Sing Financial Holdings Ltd. “stand out as the most inexpensive M&A plays in the market,” they wrote.

Dah Sing Bank traded for 1.2 times book after an 87 per cent surge in its shares this year to last week, data compiled by Bloomberg show. Dah Sing Financial, which has risen 48 per cent in 2013, has a multiple of 1. — Bloomberg