Business

Tuesday October 20, 2009

RHB ventures into Indonesia via Bank Mestika acquisition

By YVONNE TAN


KUALA LUMPUR: RHB Capital Bhd has marked its foray into the Indonesian market with its proposed acquisition of a 80% stake in PT Bank Mestika Dharma for RM1.16bil, to be funded via a rights issue exercise.

The proposed acquisition, to be completed by the second quarter of next year, will be priced at 3.5 times Bank Mestika’s price-to-book ratio and 23 times price to its 2008 earnings, according to RHB Capital director Tan Sri Azlan Zainol.

“This is a fantastic partnership and we are confident that Indonesia will provide the platform for us to achieve our next RM1bil,” Azlan said yesterday after formalising the conditional sale and purchase agreement between the banking group and PT Mestika Benua Mas, which currently holds 99.95% of the issued and paid-up share capital of Bank Mestika.

Bank Mestika’s net profit for the financial year ended Dec 31, 2008 stood at RM63mil. Its assets totalled RM1.9bil as at June 30 while average return on equity stood at 27% between 1999 and 2008.

Bank Mestika president commissioner Witarsa Oemar (left) and Tan Sri Azlan Zainol speaking to the media on Monday. - Star pic by Low Lay Phon

The bank has 50 branches and six cash outlets in Sumatra.

“The Indonesian market provides the largest market and growth opportunity within the Asean region; it is at the top of our agenda,” Azlan said.

The agreement yesterday also included an option for RHB Capital to acquire an additional 9% stake in the medium-sized Indonesian bank for RM131mil, which could result in an additional return of up to 15% per annum.

Azlan said the planned purchase would be funded via a renounceable rights issue of 361.11 million new RHB Capital shares at RM3.60 each. The exercise is expected to raise RM1.3bil.

At RM3.60, the price is a 21.7% discount to the stock’s last traded price of RM4.60 on Oct 16, before it was suspended pending the announcement of this deal.

Shares of the banking group will resume trading today.

RHB Capital’s proposed Indonesian purchase follows CIMB Group Holdings Bhd and Malayan Banking Bhd’s (Maybank) purchase of Bank CIMB Niaga (a merger between PT Bank CIMB Niaga and PT Bank Lippo) and Bank Internasional Indonesia respectively.

CIMB bought Bank Niaga at a much cheaper price of 1.5 times book value compared with Maybank’s acquisition at 4.6 times.

Azlan noted that RHB Capital would “not play catch-up” with CIMB and Maybank. “We will grow at our own pace,“ he said.

Another local bank which has made a foray into the Asian region is Hong Leong Bank Bhd, which recently saw the maiden contribution from its 20% associate, China’s Bank of Chengdu Co Ltd.

Meanwhile, RHB Banking group managing director Datuk Tajuddin Atan said the privately-held Bank Mestika was expected to be listed on the Indonesian stock exchange next year before the completion of the proposed stake acquisition.

The proposed acquisition was expected to be earnings accretive upon completion, he said, adding: “The group’s overseas earnings contribution will be raised immediately to 8% from the current 4%.”

The banking group’s target is to achieve 40% offshore income by 2017. “We are always on the lookout for opportunities,” Tajuddin said when asked on further acquisitions.

RHB Capital has branches in Brunei, Thailand and Singapore, and holds a 49% stake in a Vietnamese stockbroking firm. The group could apply for a banking licence in Vietnam, Azlan said without elaborating.

“We are open to discussions for expansion in Thailand as well as Cambodia and Vietnam. However, nothing is concrete at the moment; we prefer to focus our energy and resources on our Indonesian venture.

“We plan to grow Bank Mestika’s presence significantly across Indonesia, enhance distribution and product capabilities, focus on asset quality and increase fee-based income. We are also looking to introduce new products such as trade financing and Islamic banking – we want to be among the top seven in Indonesia over the next six to seven years (from the current 15th-20th position),” Tajuddin said.

With “a strong capital adequacy ratio of 27% currently” Bank Mestika should be able to fund its expansion through internally-generated funds, he added.

RHB Capital is controlled by the Employees Provident Fund and Abu Dhabi Commercial Bank PJSC.

Currently ranked 12th in Asean, it aspires to be the top three by 2020.

“Despite the smallish scale of the acquisition, we believe this is a positive step forward for the group as it serves as a sign of longer term aspirations of regionalising its operations,” OSK Research said in a note to clients yesterday.

 
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