HK tycoon Li set to rebuff activist Elliott over family bank

HONG KONG: Hong Kong’s clubby, tycoon culture clashes with Wall Street today when activist investor Elliott Management Corp, frustrated by poor returns at family-run Bank of East Asia (BEA), tries to persuade shareholders to defy the board.

The shareholder votes on proposals including renewing some directors’ tenure and a mandate to issue new shares, pits the US$27bil hedge fund founded by billionaire Paul Singer against BEA’s flashy chairman and former politician David Li, whose grandfather founded the bank nearly 100 years ago and whose family is among the city’s best connected.

The dispute illustrates the tension between minority shareholders in Asia pushing for better returns and transparency and local conglomerates used to running their listed businesses with less scrutiny of corporate governance than is typical in the United States and Europe.

Elliott, a BEA shareholder for five years, has built a 7% stake and says the stock’s underperformance is down to weak management.

BEA is the last big family-run bank in Hong Kong, but its profitability lags its listed peers, and in February Elliott called for the US$10bil bank be put up for sale.

This is the first shareholder meeting since that call, and Li, a familiar sight on Hong Kong roads in his Rolls Royce with its “DL 1” licence plate, is squaring up for a scrap.

“Elliott is personally challenging me. I will stand up for a good fight,” he said at the annual results briefing in February.

Elliott has a reputation for bitter battles against corporate boards of global companies including South Korea’s Samsung Group and has taken on governments from Argentina to the Congo over distressed sovereign bonds.

It has already drawn some blood at BEA, opening a court inquiry into last year’s issue of new bank shares to Japan’s Sumitomo Mitsui Banking Corp (SMBC), a unit of Sumitomo Mitsui Financial Group Inc.

Some investors say such share dilution is aimed at protecting the Li family’s control.

Though Elliot has the support of proxy adviser Glass Lewis, which has called on investors to reject several of BEA’s resolutions, the Li family should win the day thanks to its ties with other big shareholders, including SMBC and Spain’s Caixabank SA, which each own about 17% of the stock.

The Li family directors hold 7.8%. – Reuters