WHEN news broke yesterday morning that Maybank was buying Singapore's Kim Eng Holdings Ltd, many wanted to know if the country's largest bank in terms of assets was indeed overpaying for the stake in the Singapore brokerage.
The concerns are valid as Maybank was widely criticised for having paid hefty premiums of 4.65 and 5.1 times price-to-book value respectively to enter the Indonesian and Pakistan markets in 2008 and many wonder if it will do the same this time around.
In total, Maybank paid RM12.5bil for its acquisition spree in 2008 which included Bank Internasional Indonesia, MCB Bank in Pakistan, and An Binh Bank in Vietnam.
Yesterday Maybank said it would pay RM4.2bil to buy the entire stake in Kim Eng. This works out to about 1.9 times book and is deemed as “fair price.'' In terms of price-to-book value, it is not far from the 1.4x CIMB Bhd paid for Singapore's GK Goh.
Kim Eng is bigger in size, and Maybank gets exposure to markets beyond Singapore. Kim Eng has operations in Thailand, Indonesia, the Philippines and Vietnam broking markets.
For Maybank, the purchase broadly fits its aspirations of evolving into a major player in South-East Asia.
But there is a missin link, which is Thailand. This deal gives it the broking and investment banking business exposure but not commercial banking.
Given the political instability there, Maybank may want to wait a while. The nature of the deal implied that Maybank is willing to take on a stronger player and consolidate rather than starting afresh, said Anandakumar Jegarasasingam, the vice-president and head of financial institution ratings at Malaysian Rating Corp.
Kim Eng is a strong franchise and it would have taken Maybank a while to build its own franchise in Singapore. Even with Kim Eng, more work is required to beef up its investment banking and broking busineses to build its market share.
In commercial banking, Maybank's first foray out of Malaysia was to Singapore and Brunei in 1960. With 22 branches in the republic today, it is the fourth largest local bank while every fifth car is financed by it.
To recap, this deal had a long courtship with an on-off affair, beginning in 2006. Then I had written an article quoting sources that “Maybank was seriously looking into a strategic tie-up with Kim Eng.''
Only now it has come to fruition and over the years, Maybank has added BII, MCB and An Binh.
Going cross border has been the theme for many Malaysian banks and companies, some to invest while others look for partners or contracts.
For a long time, the banks have led the way. Most of the bigger banks - Maybank, CIMB, Public Bank and Hong Leong Bank - have scaled new heights in regional alliances or investments. For these banks, the expansion into other markets is necessary as the local market is getting saturated, even though it means competing with global players in most of the regional markets, which can be a tough call. Singapore in itself is a “very competitive market and one wrong move can result in that player being shut out.'' Apart from the banks, the telcos have carried the Malaysian flag across many countries.
They have been able to replicate their business models in emerging markets but not without fighting fierce battles with global rivals. Our construction companies have also made some successes. But the rate of failures has been high too and many companies have lost a lot of money while trying to expand their footprint.
In essence, it is great to have “big ambitions and be a regional or global player'' but there could be a high price to pay in terms of “tuition fees'' if things are done in a rush without proper planning and execution is weak.
Expertise may also be lacking or someone had simply misread the market and misinterpreted the country risks. The list can go on.
Big ambitions are good so long as they are realistic but prudence should be the name of the game in growth plans.
Deputy news editor B.K. Sidhu's ambition, for now, is to head for Universal Studios.
Source : http://biz.thestar.com.my/news/story.asp?file=/2011/1/7/business/7750899&sec=business - Jan 7, 2011
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