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Thailand’s Biggest Bank Deal Seen as GE Exits: Real M&A

September 21, 2012

Thailand’s Biggest Bank Takeover Seen as GE Plans Exit

Employees walk past the logo of Bank of Ayudhya Pcl at its branch on Wireless Road in Bangkok. Photographer: Dario Pignatelli/Bloomberg

General Electric Co.’s potential exit from Thailand’s banking industry is giving Malayan Banking Bhd. (MAY) the chance to claim a foothold in Southeast Asia’s second- largest economy.

GE may sell its 33 percent stake in Bank of Ayudhya Pcl, people with knowledge of the matter said last week. Tisco Securities Co. says the sale may create an opening for a foreign takeover of the entire Bangkok-based company, which is the most profitable lender among 11 publicly traded Thai banks based on net interest margins. An acquisition of Bank of Ayudhya, which has a market value of $7 billion, would be the country’s largest bank deal, according to data compiled by Bloomberg.

As a top issuer of credit cards and personal loans in Thailand, Bank of Ayudhya may more than double profit by 2014 as consumer borrowing outpaces demand for credit from businesses, according to Citigroup Inc. Amid rising car and home purchases, loan growth accelerated to 14 percent in the second quarter. While the nation’s central bank needs to give permission for any takeover, Maybank’s eagerness to expand in Southeast Asia makes it likely to bid for the entire bank, said ECM Libra Capital Sdn.

“Bank of Ayudhya is an attractive takeover target,” said Peach Patharavanakul, a Bangkok-based analyst at Tisco Securities. “Thailand’s economy now is a story of domestic demand and consumption. Bank of Ayudhya is one of the best bets on this story.”

Transformed Lender

Maybank said in an e-mail that it doesn’t comment on market speculation. In an interview with CNBC, Chief Executive Officer Abdul Wahid Omar said today he wants a Thai retail bank.

“It’ll be great if we can have a domestic retail and commercial banking presence in Thailand,” he said in the interview. He said Maybank is “keen” to expand in Thailand, though didn’t say whether the bank would bid for GE (GE:US)’s stake.

Officials at Bank of Ayudhya referred all questions to GE Capital in Singapore, which said in an e-mail that “we regularly evaluate our strategic options for our investments”

Bank of Ayudhya fell 2.1 percent to 35.5 baht in Bangkok, the biggest decline in almost three weeks. Maybank rose 0.1 percent to 9.15 ringgit in Kuala Lumpur.

Formed in 1945 and listed on the local stock exchange in 1977, Bank of Ayudhya has counted GE as its top shareholder since 2007, when the Fairfield, Connecticut-based company acquired a 29 percent stake, data compiled by Bloomberg show. GE boosted its stake to 33 percent later that year.

AIG, HSBC

That investment preceded at least eight takeovers by the Thai bank, including purchases of businesses from GE, American International Group Inc. (AIG:US) and HSBC Holdings Plc (HSBA), the data show. Those deals turned Bank of Ayudhya into the nation’s top or second-ranked provider of credit cards, car loans and personal finance, bank filings show.

“GE has successfully transformed Bank of Ayudhya into one of the country’s top lenders, especially in retail banking,” Sasikorn Charoensuwan, head of research at Phillip Securities (Thailand) Pcl, said in a phone interview. “For any overseas lenders that want to expand in Thailand, Bank of Ayudhya will be a very strong platform.”

Bank of Ayudhya has more than doubled in value from GE’s initial 16 baht-a-share purchase price. GE is considering options including selling the stake, two people with knowledge of the matter said last week, asking not to be identified because the information is private.

With 600 branches in Thailand, Bank of Ayudhya does business under the brand name Krungsri. Both Ayudhya and Krungsri are names for Thailand’s ancient capital in Ayutthaya Province, north of Bangkok.

Profit Surge

Bank of Ayudhya’s profit, which has surged 115 percent since 2008, will more than double again by 2014 to 20.7 billion baht, according to an Aug. 6 report by Citigroup analyst Kritapas Siripassorn. Its net interest margin, a measure of the profitability of the lending business, was 4.2 percent last quarter, the highest among 11 Thai banks, data compiled by Bloomberg show.

“It’s one of the better banks in Thailand because it’s more focused on consumer loans, providing better profit margins,” Alan Richardson, a Singapore-based fund manager who helps oversee $82 billion for Samsung Asset Management Co., said in a phone interview. “Buying Bank of Ayudhya will be a fast way of getting into Thailand’s top five banks.”

According to Richardson, among the potential buyers is Maybank, Malaysia’s largest lender. The Kuala Lumpur-based bank is one of the possible bidders that GE may contact about its stake, a person with knowledge of the matter said last week.

‘Noticeable Gap’

Maybank has sought a Thai retail bank since at least August 2011, when CEO Abdul Wahid described the lack of such a business in Thailand as a “noticeable gap” in its Southeast Asian network.

The bank plans to generate 40 percent of operating profit from outside Malaysia by 2015 and wants to be in all the region’s major markets by that date, he said. Filling the hole in Thailand will require an acquisition, Abdul Wahid said.

Maybank, which bought PT Bank Internasional Indonesia in 2008 and Singapore brokerage Kim Eng Holdings Ltd. last year, earned 28 percent of pretax income from overseas operations in the six months ended June 30, according to bank filings. The purchase of Kim Eng gave Maybank stock-broking and investment banking operations in Thailand.

Cars, Homes

With home and car owners also among Maybank’s biggest borrowers, the Malaysian bank is a good match for Bank of Ayudhya and is unlikely to stop at just a 33 percent stake, said Leong Hon Sze, an analyst at ECM Libra in Kuala Lumpur.

“I don’t think it makes sense for them to just have an associate stake,” he said. “They would want control.”

Maybank, with a market value of $23.5 billion, would need to sell shares to raise funds for a potential takeover, Leong said. After a 60 percent gain this year, Bank of Ayudhya has a market value of 215.6 billion baht ($7 billion).

A takeover at that size would be the biggest bank deal in Thailand, and surpass the combined value of all of Maybank’s acquisitions in the past four years, data compiled by Bloomberg show.

At yesterday’s close of 36.25 baht, the shares were valued at twice the bank’s book value at the end of June. Though that’s above a median multiple of 1.6 times book value paid in acquisitions of Thai banks, Bank of Ayudhya deserves a higher valuation, of as much as two times book, said Tisco’s Patharavanakul.

‘Asset Quality’

“If you buy Bank of Ayudhya today, you don’t have to waste time cleaning up asset quality compared to the previous deals,” she said.

Thailand’s economy, Southeast Asia’s largest after Indonesia, may expand as much as 6 percent this year, the government said in August, after Prime Minister Yingluck Shinawatra offered tax incentives to spur car and home purchases and raised minimum wages.

Total bank loans grew 14.2 percent from a year earlier in the second quarter, accelerating from a 13.9 percent expansion in the first quarter, Bank of Thailand senior director Nawaporn Maharagkaga said on Aug. 9.

“Slower markets at home are spurring Asia-Pacific banks to look abroad to boost growth,” Deepali Seth-Chhabria, a Mumbai- based analyst at Standard & Poor’s, said in an e-mail. “The Thai banking system could appeal as it is a relatively stable system. We expect the recent high-growth period to continue.”

Thailand’s Approval

As many as four overseas banks, including lenders from South Korea, Taiwan and Australia, are interested in investing in Thailand, Bank of Thailand Deputy Governor Krirk Vanikkul said on Sept. 18.

Any acquirer will need the approval of Thailand’s central bank, which has so far granted permission based on the banks’ need for capital or to be better managed, said Wee Siang Ng, an analyst at BNP Paribas Securities Singapore Pte.

Among foreign banks that control Thai lenders are CIMB Group Holdings Bhd. (CIMB), Malaysia’s second-largest lender, and Singapore’s United Overseas Bank Ltd. (UOB) Both acquired their Thai units, CIMB Thai Bank Pcl (CIMBT) and United Overseas Bank (Thai) Pcl.

The foreign interest in Thailand will continue, said Adithep Vanabriksha, Bangkok-based chief investment officer at Aberdeen Asset Management Plc (ADN), which has worldwide assets of about $293 billion.

“Domestic consumption will be a big story for Thai banking over the next few years with the global economic slowdown,” he said by phone. “Bank of Ayudhya will receive a lot of interest from foreign banks.”

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net; Darren Boey at dboey@bloomberg.net.


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