HSBC said today it planned to privatise Hong Kong's Hang Seng Bank in a deal worth HK$106.1 billion ($13.63 billion) after its majority-held subsidiary has come under fire for its performance and exposure to faltering property markets in the city and mainland China.
HSBC will offer HK$155 per share for the 36.5% of shares it does not already own, giving Hang Seng Bank a total valuation of $37 billion.
Hang Seng Bank shares surged to as high as HK$168 in early trading before retreating to HK$150.3 by midday, up 26.3% but below the offer price.
HSBC's Hong Kong-listed stock fell 6.2% to HK$103.7 by the break, a far worse performance than the 0.15% decline in the benchmark Hang Seng Index.
HSBC said the offer was made at a 30.3% premium to Hang Seng Bank's closing price of HK$119 yesterday.
The transaction marks the largest banking acquisition in Hong Kong in more than a decade, since OCBC purchased Wing Hang Bank in 2014 via a $5.3 billion deal, according to Michael Makdad, senior equity analyst at Morningstar.
"This is an investment for the medium to long-term in what is a leading local bank in Hong Kong, an iconic franchise, distinct and unique customer proposition and a strong financial standing with very good liquidity ratios and capital ratios," HSBC CEO Georges Elhedery told reporters today.
The move contrasts with a string of market exits by HSBC after Elhedery took the helm last year and launched a global overhaul that saw the lender sell off or wind down businesses across Europe, North America and some Asia Pacific markets.
But Hong Kong emerged as a stand alone division after the restructuring, along with three other key operations.
The offer, which will maintain Hang Seng Bank's separate brand, also represented a significant investment in Hong Kong's economy, underscoring HSBC's confidence in the market and its future as a leading global financial centre, the CEO said in a separate statement.
Elhedery told reporters "additional streamlining and simplification" are expected at Hang Seng, and the banks would seek to align in areas of product manufacturing and international networks.
HSBC would pause its share buybacks for about three quarters to build up the capital required for the acquisition, according to Elhedery.
The Hong Kong Monetary Authority (HKMA) said it had been in talks with the banks on the proposal and would maintain dialogue during the process.
"We take note of HSBC Holdings' stated rationale for the transaction being investing significantly into Hong Kong," it said in a statement.
Morningstar's Makdad said the move was "positive and long-overdue" as parent-subsidiary double listings were inherently problematic in terms of governance.
"HSBC will need to pay a premium, but there should be some opportunities for cost synergies," he added.
Rising bad loans
The privatisation move comes as Hong Kong's debt-laden property developers and their creditors are set to face intensifying financial pressure as bond maturities are slated to jump by nearly 70% next year.
Hang Seng Bank has reported rising bad loans over the last few years due to its relatively high exposure to the Hong Kong and mainland Chinese property markets.
Impaired loans reached 6.7% of its gross loans as of June 2025, up sharply from 2.8% at the end of 2023.
Reuters last year reported that due to worries about a potential rise in bad loans amid growing economic headwinds and the property sector crisis in China, HSBC in early 2024 started planning to tighten risk management at Hang Seng Bank.
When asked if the move to privatise Hang Seng Bank was a bailout considering its worsening loan book, Elhedery said that was "absolutely not the case" and added both banks had communicated about Hang Seng Bank's commercial real estate exposure.
"We remain constructive on the outcome for the sector in the medium to long term. So we see this as a short term credit cycle, which in part is normalising," he said.
HSBC said the privatisation would have a negative impact of about 125 basis points on its common equity tier 1 (CET1) ratio, which stood at 14.6% at end-June.
But it expected to restore its CET1 ratio to its target operating range of 14% to 14.5% through organic capital generation and by pausing share buybacks.
The offer price is final, HSBC said, adding that it does not reserve the right to revise it.
