BEA shares dip after Elliott’s legal action

BLOOMBERG

Bank of East Asia (BEA) Ltd. shares dropped the most in two weeks in Hong Kong after Elliott Management started legal action alleging that the family-run lender acted improperly when issuing stock, which it says diluted minority investors and entrenched management control.
The stock sank as much as 2.8 percent on Tuesday, the biggest intraday slide since July 6. The bank traded 1.4 percent lower at HK$31.25, compared with the benchmark Hang Seng Index’s 0.7 percent decline.
Billionaire Paul Singer’s Elliott said it had started legal proceedings against the lender and directors including Chairman David Li in a statement Monday, marking an escalation in the activist hedge fund’s battle against BEA.
The bank will “vigorously oppose” Elliott’s petition, BEA said in a Hong Kong exchange statement filed later in the day.
The first court hearing is scheduled for September 21, the lender said.
“Investors are taking a profit as it’s still uncertain about how the legal action will go,” said Edmond Law, a Hong Kong-based leading
analyst with UOB-Kay Hian Holdings Ltd.

The stock has gained 49 percent from a seven-year low reached in February, which is when Elliott had issued a statement calling on the bank to explore a sale of itself. Ahead of BEA’s annual investor meeting in April, the hedge fund also voiced concerns about Li’s re-election as chairman and a board mandate to sell shares.
Elliott is seeking rulings including that board resolutions connected with the lender’s placement of new shares to Japan’s Sumitomo Mitsui Banking Corp., completed in March last year, were “passed for an improper purpose.” The fund also asks the court to release the Japanese firm and Criteria Caixa SA – the parent of Spain’s CaixaBank SA – from any undertakings that restrict them from boosting or cutting their stakes.
“What Elliott is trying to achieve is to increase its influence in Bank of East Asia,” Law said. “In turn, they can get a higher return in case Bank of East Asia sells itself.”
BEA’s recent rally means its equity is now trading at the same value as its net assets for the first time since August, data compiled by Bloomberg showed. A price-to-book ratio of two times would be “pretty attractive” to Elliott, according to Law.
Elliott or affiliated entities have held BEA shares since July 15, 2010, according to the filing, when the bank’s shares closed at HK$28.95. The shares have gained 9.5 percent between then and yesterday, outperforming an 8 percent loss in the Hang Seng Finance Index.