BEA Wins Halt From Elliott After Starting Strategic Review

(Bloomberg) -- Bank of East Asia Ltd. started a review of its business and assets that could lead to transactions, reaching an agreement with Paul Singer's Elliott Management Corp. to pause proceedings against the lender. The shares gained as much as 8.9% in afternoon trading, the biggest jump in four years.

“The review will focus on the identification of potential strategic transactions which would enhance the value of the bank's existing businesses and assets, as well as strategic alternatives for potentially non-core assets,” the Hong Kong-based bank said in a statement.

The process is supported by Elliott Management, which will apply for a stay of the “unfair prejudice proceedings” it started in 2016 against the bank and certain former and serving directors. Elliott, which owns about 8% of its shares, has alleged that the lender acted improperly when issuing stock that diluted minority shareholders, and cited its “chronically poor performance” and “the inability of an entrenched executive management team to deliver proper value.”

Like many lenders in Hong Kong, BEA is now struggling under the outbreak of the coronavirus, which is adding to woes in the financial hub amid continuing anti-government protests. The bank's profit slumped 50% in 2019 and its share price has fallen more than 50% from a high in 2017. David Li, the bank's chief executive officer for 38 years, stepped down last year, and was replaced by his two sons, Adrian Li and Brian Li. The elder Li remains as executive chairman.

The bank, which has the most exposure to mainland China among the city's lenders, estimated last month a deterioration of 10-20 basis points in credit costs in Hong Kong because of the virus outbreak.

“The review gives investors a new angle to look at BEA because the bank has not been performing well in terms of earnings,” Steven Leung, an executive director at UOB Kay Hian (Hong Kong), said by phone. “It's a positive move for its share price. Investors didn't have any expectation anymore about BEA selling and now there's hope at least.”

The bank hired Goldman Sachs Group Inc. as its financial adviser for the review.

To contact the reporter on this story: Alfred Liu in Hong Kong at aliu226@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Jonas Bergman, Jun Luo

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