New speculation on possible Affin merger and acquisition (5185)

by **hlk** Tue 26 Jun 2012, 07:55

PETALING JAYA: Speculation has surfaced yet again about a possible merger and acquisition (M&A) exercise involving the country's second smallest banking group Affin Holdings Bhd.

The M&A speculation is centred around Hong Kong-based Bank of East Asia Ltd (BEA), the second largest shareholder of Affin with a 23.52% stake.

According to a report by HwangDBS Vickers Research, there is a possibility that BEA could be seeking to divest its block in Affin.

“A shift in BEA's strategy to focus on Greater China could mean that it is no longer keen on leveraging on its relationship with Affin. BEA has relinquished its businesses in the United States and Canada, where it had once sought growth overseas in areas with large ethnic Chinese population. Affin is BEA's exposure in Asean for a similar reason. Would BEA sell Affin?” posed HwangDBS in its report.

Affin contributed 7% of BEA's profit as at Dec 31, 2011.

Interestingly, HwangDBS had also raised the possibility that Tan Sri Quek Leng Chan's Hong Leong Bank Bhd (HLB) could end up as a merger partner with Affin. The report said Quek's Guoco Group Ltd had been acquiring BEA shares. Guoco currently owns 15.09% in BEA.

“Assuming Guoco does gain control of BEA, HLB would emerge as a distant cousin of Affin. In this case, would HLB merge with Affin or would Affin be divested?” HwangDBS posed.

HwangDBS, however, said it saw little accretion in a HLB-Affin marriage as Affin's asset size of RM57bil at at March 31, 2012 would not significantly boost HLB's balance sheet.

BEA emerged as a substantial shareholder in Affin in June 2007. The bank started actively picking up shares in Affin in the middle of 2009 and is now the second largest stakeholder with the 23.52% block.

HwangDBS estimates that BEA had spent about RM858mil to build up its stake in Affin.

Based on Affin's current market capitalisation of RM4.88bil, BEA's 23.5% stake in the company is worth RM1.15bil.

Affin's largest shareholder is Lembaga Tabung Angkatan Tentera (LTAT) which controls 56% of Affin.

However, checks with industry sources reveal that BEA has not appointed any advisor for the sale of its Affin stake. An industry observer reckons an M&A involving Affin is unlikely for now.

“It is too small to be a consolidator and it appears that LTAT is keen on Affin maintaining its independence,” he said.

Affin is currently awaiting approval from the Bank of Indonesia for the proposed acquisition of PT Bank Ina Perdana. In the first quarter ended March 31, Affin reported better-than-expected first quarter earnings with a 56.5% jump in net profit to RM166mil. Revenue increased 15.7% year-on-year to RM722.7mil.