On 19 June 2023, OCBC increased its stake in Great Eastern (GE) to 88.4%. The venerable bank tried to privatise Great Eastern Holdings (GEH) unsuccessfully in 2004 and 2006. In the 2006 attempt, OCBC Bank managed to raised its stake in Great Eastern to 87.1%. Since then, OCBC Bank has steadily increased its stake to 87.91% as at 31 March 2021. If a privatisation does materialise, what would be the implication on OCBC share price?
Under SGX Rule 723 of the Listing Manual, listed companies must ensure that at least 10% of their issued shares must be held by the public. As OCBC currently holds about 88.4% of Great Eastern, the bank would just need to acquire only 1.6% more of Great Eastern shares in order to trigger the mandatory delisting requirement.
As at 20 June 2023, OCBC share price was trading at $12.56, remaining flat after the Great Eastern stake increase. The fact that the counter did not move at all could mean that the market viewed a potential privatization of Great Eastern as “non-event” for OCBC share price. However, what if OCBC privatize the insurance and then sell it off to unlock value for OCBC shareholders?
An SG Wealth Builder member had raised the possibility of OCBC divesting Great Eastern to me lately. My initial reaction was that the sale of the insurance company is unlikely given the importance of Great Eastern to OCBC’s business. However, the upcoming insurance rule changes proposed by Monetary Authority of Singapore (MAS) have altered my view on this matter.
I will share my insights on the potential impact of MAS insurance rule change on Great Eastern in the latter part of this article. But I do think that it is also important to provide some historical context between OCBC and Great Eastern.
Although it was the Lee family who founded OCBC, Tan Chin Tuan was the man who helped to scale the bank into a conglomerate in Singapore. Tan Chin Tuan’s vision was that OCBC Bank should invest in various companies to generate various revenue sources while focusing on its core banking operations. Under his leadership, OCBC used to own significant stakes in numerous companies, notably Fraser & Neave, Raffles Hotel, Robinson, Straits Trading, Wearnes and Great Eastern.
In the aftermath of the Asia Financial Crisis, the MAS mandated local banks to divest non-banking assets by 2006 in a bid to limit the risk of contagion of non-banking business to the bank. To comply with this policy, OCBC had divested numerous iconic companies held in its stable over the years. Raffles Hotel was sold to Colony Capital in 2005 for $1 billion while Robinson was sold to Lippo Group for $203 million in 2006. These divestments helped to unlock value of OCBC share price through the decades.
Despite the numerous divestments over the years, OCBC still hold a tight grip on Great Eastern and the latter had evolved to become the crown jewel of OCBC after the bank pioneered bancassurance business. For 14 long years, OCBC had led in the bancassurance business but was usurped by DBS in 2015.Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am not vested in this counter at the moment.
OCBC share price at cross-roads with Great Eastern
It is clear that OCBC is determined to integrate Great Eastern as part of its long-term growth strategy to become a financial services powerhouse. The privatisation of Great Eastern could be a significant, yet a low-hanging fruit for CEO Helen Wong. She would have achieved a feat not accomplished by previous CEOs – David Connor and Samuel Tsien. Given that Great Eastern has evolved to become a crown jewel for OCBC, the acquisition would provide a strategic advantage as both DBS and UOB do not own any insurance companies.
Despite the strategic importance of Great Eastern to OCBC, the insurer is somehow [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Lifetime Membership
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