This article first appeared in The Edge Malaysia Weekly on March 27, 2023 - April 2, 2023

The Lau family, which controls Hap Seng Consolidated Bhd (HSCB), seems to be consolidating its lending business in Hong Kong-based Lei Shing Hong Capital Ltd (LSHCL).

Last week, HSCB announced that, in a related-party transaction, it was disposing of its lending unit in Manchester, the UK, to LSHCL for £153 million (RM837 million). After the disposal, HSCB’s lending business outside Malaysia will only be in Birmingham, where it has a credit company.

Gek Poh Holdings Sdn Bhd, which is the controlling shareholder of HSCB with direct and indirect stakes totalling 62.64%, is also a major shareholder of LSHCL, holding 38.74%. Hence, Tan Sri Lau Cho Kun, who heads Gek Poh Holdings, and his family will not vote on the transaction.

The transaction values the Manchester-based company — HSC Manchester Pte Ltd — at three times book value. HSCB’s shareholders should have no reason to quibble over the valuation. It is way above those of similar companies in the UK where the average is less than 0.8 times book value.

But why is LSHCL so generous in the offer for HSC Manchester? Does it see a potential in HSC Manchester that the current management of HSCB does not? HSC Manchester is profitable, but the numbers are small relative to the disposal price. The lending business in the UK is also highly regulated and competition is stiff.

This is not the first time that LSHCL has acquired the lending business of HSCB. In 2015, it acquired HSCB’s lending unit in Singapore for 4.89 times book value in a transaction valued at S$240 million. HSCB used the proceeds to develop its property business and beef up Hap Seng Credit’s capital.

In the latest transaction, HSCB is using the bulk of the RM837 million to reduce its borrowings.

Considering that LSHCL is paying a premium price for the lending business, it is probably able to derive better value in the business than HSCB.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.