Hang Seng Bank reveals diluted 10.9% stake in China Industrial Bank

No longer an associate company.

According to Maybank Kim Eng, HSB announced that its stake in China Industrial Bank (601166 CH, CIB) will not be treated as an associate company, starting from Jan13. The stake will be treated as available for sale investment (AFS) instead.

HSB held 12.8% stake in CIB, but after CIB completed its new share issue yesterday (HSB did not take part), its stake was diluted to 10.9%. HSB believes
that it no longer could exercise significant impact on CIB, therefore announced the new accounting treatment.

Here's more from Maybank Kim Eng:

In the past CIB contributed a significant part of HSB’s pre-tax profit. For instance, CIB contributed 22% of HSB’s PBT in 1H12. In the future results (starting 1H13), HSB can only share CIB’s income via CIB’s dividend pay-out (if any), and CIB’s dividend pay-out had not be generous.

The financial impact could be significant.

We however want to point out that such treatment should be well expected by the market. HSB’s management already guided this during its 1H12 results in Jul12.