KUALA LUMPUR: The brewing uncertainty over changes to the rules governing Indonesia’s bank ownership limits has claimed its first casualty. Affin Holdings Bhd announced yesterday it has shelved plans to acquire a controlling stake in one of Indonesia’s smallest banks, PT Bank Ina Perdana (Bank Ina). (source)
Affin announced that it had discontinued plans to acquire a direct 80% stake in Bank Ina given that Indonesia’s central bank is mulling plans to reduce the limit on foreign majority shareholdings in Indonesia’s commercial banks.
Yesterday’s announcement came with the lapse of the sales and purchase agreement and the subscription agreement it had entered into a year ago on Aug 4, 2010 for the acquisition of Bank Ina.
Last August, Affin announced its maiden venture outside Malaysia, the purchase of a direct 80% stake in Bank Ina for about RM138 million from three parties.
The price tag roughly translated to an average price-to-book ratio of 1.69 times based on the Indonesian bank’s unaudited net assets as at May 31, 2010, Affin said in a press release at the time.
“All parties may renegotiate the terms of the proposals after the policy [on Indonesian bank
ownership] has been released,” Affin said in a filing with Bursa Malaysia yesterday.
To recap, the proposed deal would have seen Affin acquiring 65.28 million existing shares, representing a 20.82% stake in Bank Ina, and subscribing for 185.6 million new shares which represented 59.18% of Bank Ina’s enlarged issued and paid-up share capital.
The exercise also involved a proposed put and call option for up to 56.48 million existing shares of Bank Ina, which represented up to 18.01% of the latter’s issued and enlarged paid-up capital.
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| Some analysts believe Bank Indonesia is responding to comments that foreign banks including Malaysian institutions are the ones benefiting from the growth in Indonesia's banking industry. |
Affin hailed the acquisition as a good fit with its own long-term growth plans given Bank Ina’s niche as a retail bank in Indonesia’s small and medium enterprise (SME) sector.
Initially, Affin hoped to complete the deal by mid-2011, after which it would convert Bank Ina into an Islamic bank to tap opportunities in Indonesia’s relatively small Islamic banking industry.
Affin’s decision to axe its plans appeared to catch the market unawares, with Affin closing yesterday unchanged at RM3.39 on thin volume of 535,000 shares traded.
Bank Indonesia’s impending decision to reduce the threshold on bank ownership limits is expected to affect major shareholders of Indonesian banks, which include Indonesian tycoons, Singaporean banks and other foreign players.
The two Malaysian banking giants with operations in Indonesia that could be impacted are CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank).
Bank Indonesia is reportedly looking to impose rules that would reduce the limit on ownership of Indonesian banks from 99% to 50%.
The proposed restrictions come at a time when Indonesia is experiencing strong credit growth and soaring bank profitability, albeit with a growing sense that its financial sector has been left too much in the hands of foreigners, the Financial Times said in a report this week.
Almost one third of Indonesia’s 122 commercial banks are either majority foreign-owned or foreign joint venture banks. There are 10 majority foreign-owned and 28 foreign joint venture banks.
An analyst opined that any significant cuts in ownership limits could cause major problems given the expected difficulties in placing out large blocks of bank shares.
It could also cause an overhang and valuation de-rating of bank shares in the Indonesian stock market, said the analyst, adding that there would be plenty of choices available all at once for investors, depending on the time frame given by the Indonesian central bank.
“It will be difficult to find a strategic buyer to take up a substantial stake in an Indonesian bank. Existing foreign-owned banks and those controlled by a single majority shareholder will either have to place out shares to institutional funds or be forced to sell on the open market. Another bank would certainly not want to come into an Indonesian bank merely as the second largest shareholder,” the analyst said.
“Everyone will be busy courting the same institutional funds to buy stakes in their banks if it happens,” he said.
CIMB holds a 96% stake in its Indonesian unit, PT Bank CIMB Niaga Tbk (CIMB Niaga), according to the latest market data.
Just a year ago, CIMB had raised its stake in CIMB Niaga by acquiring an additional 19.67% stake in the latter from Malaysia’s sovereign wealth fund Khazanah Nasional Bhd. The deal in August last year boosted CIMB’s equity interest from 78.26% to 97.93%.
Maybank holds a 95% stake in PT Bank Internasional Indonesia Tbk (BII). Maybank, which initially controlled 97% of BII, has been given an extension until December to pare down its stake in BII to 80%, analysts said.
Should CIMB and Maybank be forced to pare down their stakes in the Indonesian units, the one-off gains from the disposals would not offset the earnings contribution from the Indonesian banks, according to market observers.
Expectations of a share overhang have already driven down CIMB Niaga’s shares by 13.6% year-to-date, while BII’s shares have fallen 30.8%.
CIMB, in particular, should be able to book in large one-off gains as it invested in CIMB Niaga early, starting in 2002. Since then, it has nurtured CIMB Niaga into Indonesia’s fifth largest bank by assets, deposits, lending, and branch network. CIMB Niaga currently has a market capitalisation of 41,467 trillion rupiah (RM14.5 billion).
BII, in which Maybank invested much later in 2008, has a market capitalisation of 30,391 trillion rupiah.
However, that also means CIMB’s earnings will be more affected by a potential dilution in its Indonesian banking arm.
CIMB Niaga is currently the largest foreign contributor to its net interest income, bringing in about RM2.47 billion or 37.8% of CIMB’s total net interest income of RM6.53 billion in FY10 ended Dec 31.
CIMB Niaga contributed RM1.57 billion, or 34% of CIMB’s total pre-tax profit of RM4.65 billion in FY10, up from 20% in FY09 as the Indonesian bank’s profits doubled last year.
As for Maybank, Indonesia fast overtook Singapore as its largest foreign net income generator in FY10, contributing about RM1.89 billion or 14.7% of Maybank’s total revenue of RM12.87 billion.
Maybank’s Malaysia and Singapore operations remained more profitable than Indonesia, which contributed RM238.41 million or 4.4% of Maybank’s total pre-tax profit of RM5.37 billion in FY10.
With Affin out of the Indonesian picture for now, all eyes are now on CIMB and Maybank’s next moves in Indonesia, which was initially touted as the new frontier for robust regional expansion, but which is seeing policy uncertainties for foreign investors there.
This article appeared in The Edge Financial Daily, August 5, 2011.
Source : http://www.theedgemalaysia.com/highlights/190839-limbo-in-indonesia.html - Aug 5, 2011
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