As the last of the three local banks to hold their annual general meeting (AGM) this year, the board of Oversea-Chinese Banking Corporation (OCBC) O39 not only faced the typical shareholder questions about dividends, but also had their responses compared against that of their contemporaries.
A set of questions unique to OCBC, however, was about its 88%-owned subsidiary, the separately-listed insurer Great Eastern Holdings (GEH) G07 .
OCBC chairman Andrew Lee says the bank’s interests, as majority shareholder, are aligned with that of the investors in the room. “A stronger dividend, a richer dividend, is something that we, as common shareholders in Great Eastern, are fully aligned [with]. We have no divergence of interest.”
Shareholders would have been pleased to hear the following from Lee: “Last year, Great Eastern declared a payout ratio close to 39%. For the bank, we made a policy change with regards to our dividends; we aim to pay 50% of our profits, barring unforeseen circumstances. I think there could be dialogue between us and Great Eastern on dividends.”
Lee says OCBC’s board will engage the new chairman of GEH, Soon Tit Koon, on fulfilling this interest. Soon was appointed chairman on April 22. “We, as [the] major shareholder of Great Eastern, would like to engage him to review the business strategy of Great Eastern and to see how it can show greater and more sustained growth.”
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Lee says OCBC’s board also intends to request to nominate “one or two more directors” from the bank to GEH’s board, thereby increasing its representation.
That said, Lee reiterates that there is a “legal differentiation” between the two entities. “Great Eastern is separately listed on the SGX [Singapore Exchange]. It is a standalone, legal company. There are two sets of statutes and laws governing our bank and Great Eastern: SGX regulations and the Companies Act.”
GEH’s board and its directors have an independence to decide what is fit, in their view, for GEH, says Lee. “OCBC cannot just dictate [that]. We are being upfront. There are legal and regulatory rules that we have to strictly observe.”
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GEH’s incoming chairman, Soon, was OCBC’s group CFO from 2002 to 2011. In February 2004, OCBC acquired the Lee family’s 13.6% stake in GEH, making GEH a subsidiary. OCBC subsequently made an offer for the remaining 49% of GEH it did not own. Its stake in GEH is currently a shade below 88%.
OCBC’s current chairman, Lee, was a banker in OCBC from 1999 to 2017, and this included a stint at GEH.
‘Talk to us’
At GEH’s AGM on April 21, shareholders asked if the two parties would consider working closer in tandem, such as linking the GEH’s management remuneration to share price through GEH stock options.
GEH’s management is currently rewarded with OCBC stock options. GEH shareholders argued that management is not currently incentivised to increase total shareholder returns and shareholder value as their KPI is focused on embedded value (EV) and new business embedded value (NBEV).
OCBC’s shareholders were more blunt; one individual asked if OCBC would privatise what they believed was a grossly undervalued GEH.
“We are always open to possibilities,” says Lee. “If there are Great Eastern shares available for sale, talk to us; we may be interested. This is just one strategic possibility the bank has with regards to Great Eastern.”
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Lee says the bank is “not in a trading posture” to buy or dispose of shares in GEH, Bank of Ningbo or OCBC NISP (in Indonesia). “We will not trade in these shares actively. We want Great Eastern to grow and growth should reflect a stronger OCBC, and that should be reflected in a stronger OCBC share price… I think this is the first time we are openly stating where we stand on Great Eastern.”
OCBC had responded to a similar question via an SGX filing last week. Prior to the AGM, one shareholder had broached the idea for OCBC to distribute all its GEH shares to the bank’s shareholders, arguing that “this will unlock value in OCBC shares”.
OCBC said on April 21 there are no plans to distribute GEH shares to OCBC shareholders as GEH’s insurance business is one of OCBC’s three key business pillars.
To the AGM question on raising stakes, however, Lee says: “This is where we have to leave it as it is — ambiguous.”
