April 8, 2016 / 2:42 PM / a year ago

HK tycoon David Li resists activist investor Elliott's attack on BEA

Bank of East Asia Chairman and Chief Executive David Li looks on behind a logo of the bank during a news conference in Hong Kong, China, in this February 15, 2016 file photo.Bobby Yip/Files

HONG KONG (Reuters) - Bank of East Asia (BEA) (0023.HK) shareholders approved all resolutions put at its annual meeting on Friday, rejecting calls by U.S. activist investor Elliott Management Corp to defy the board, although one resolution was not put to the vote, but withdrawn instead.

The shareholder votes on proposals that included renewing some directors' tenures and a mandate to issue new shares pitted the $27 billion hedge fund firm founded by billionaire Paul Singer against BEA's chairman and former politician David Li, whose grandfather founded the bank nearly 100 years ago and whose family is among the Hong Kong's best connected.

BEA said in a securities filing all resolutions were approved, though votes against the renewal of the general mandate to issue new shares were up on last year.

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

Elliott, a BEA shareholder for five years, has built a 7 percent 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 bank be put up for sale.

Friday's shareholders meeting was the first since that call, and Li, a familiar sight on Hong Kong roads in his Rolls-Royce with its "DL 1" license plate, had said he was prepared 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.

However, Li's re-appointment as a director was opposed by 29 percent of shareholders on Friday, which Elliot said was a sign "the current board clearly has no mandate from the company's independent shareholders."

Elliott has a reputation for bitter battles against corporate boards of global companies including South Korea's Samsung Group [SAGR.UL] as well as pursuing governments from Argentina to the Congo for repayments on distressed sovereign bonds.

Elliott also criticized Li on Friday after he successfully moved a motion to withdraw a special resolution to approve certain amendments to the bank's articles of association, saying the board needed to reconsider the proposals after some shareholders had voiced different views.

The motion, which was approved with 99.97 percent support at the meeting, would not have any significant impact on the bank's business, BEA said in a statement.

"Management's last-minute decision to recommend a withdrawal of the proposed special resolution to amend the company's articles, rather than risk it being defeated, indicates weakness and poor judgment on the part of management," Elliott responded in a statement of its own issued later on Friday.

The U.S. hedge fund manager has also criticized BEA over last year's issue of new shares to Japan's Sumitomo Mitsui Banking Corp (SMBC), a unit of Sumitomo Mitsui Financial Group Inc (8316.T).

Some investors and analysts say such share issues dilute the holdings of other investors and are aimed at protecting the Li family's control, while Elliott has been critical of the use of a general mandate to issue new shares to specific shareholders.

On Friday the ordinary resolution to renew the general mandate to allot, issue and deal with additional shares was passed with 69.5 percent of the votes in favor, down from the 72.5 percent approval rating given at last year's meeting.

FAMILY TIES

Though Elliot had the support of proxy adviser Glass Lewis, which called on investors to reject several resolutions at the meeting, the Li family's long standing ties with other big shareholders, including SMBC and Spain's Caixabank SA (CABK.MC), which each own about 17 percent of the stock, gave it more than enough backing to pass all resolutions.

The Li family directors hold 7.8 percent.

Elliott is nevertheless in it for the long haul, people familiar with the matter told Reuters.

"The usual cycle is that investors come along, make recommendations, and the mere fact that it's done publicly often is very off-putting to boards, so their initial reaction is to be very defensive and to react against them," said Jamie Allen, secretary general of the Hong Kong-based Asian Corporate Governance Association (ACGA).

"But if the idea is a good one, then quite often the company will start taking them seriously."

BEA managers have said they won't consider a sale of the firm, but its share price has risen by nearly 30 percent since Elliott's call for a sale, to value the bank at nearly $10 billion.

The bank's price-to-book ratio is still only 0.9, however, compared with the average of 1.1 for Hong Kong rivals, according to Thomson Reuters data. It also has among the lowest returns relative to equity and assets of Hong Kong-listed banks.

"The challenge here in Hong Kong and much of Asia is you have family businesses that have a family culture, and their thinking is, 'This is our business. Don't tell us what to do. We set it up,'" said Allen of the ACGA.

"On one level they are family companies, but they're also public companies. That's the challenge. It's very difficult culturally to adapt."

Editing by Edwina Gibbs, Greg Mahlich

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