8.00 pm - Malaysia's Maybank buys Indonesia's BII in move to become regional player

SINGAPORE (Thomson Financial) - Malayan Banking Bhd, the largest bank in Malaysia, said Wednesday it has agreed to buy a 56 percent stake in Bank Internasional Indonesia (BII) from Singapore's state-linked Temasek Holdings Ltd and South Korea's Kookmin Bank, for 4.8 billion ringgit or about 1.5 billion US dollars. The acquisition is part of Maybank's strategy to become a regional bank as it tries to catch up with the regional expansion of its Malaysian banking peers. Analysts however said Maybank may be overpaying to gain a foothold in Indonesia. BII is Indonesia's eighth-largest bank. Maybank recently bought a 15 percent stake in Vietnam's An Binh Commercial Joint Stock bank for 430 million ringgit. "The acquisition will transform our growth prospects in Indonesia," said Aminuddin Desa, acting chief executive of Maybank. The move is "a huge step forward in our strategy to regionalize our operations through investments in selected high-growth markets," he said. With a population of 230 million, Indonesia offers Maybank long-term growth potential because banking penetration in the country is relatively low compared to other markets, Aminuddin said. Temasek is among the early foreign investors in the Indonesian banking sector and also owns 68 percent of Bank Danamon, Indonesia's fifth largest bank. After studying the feasibility of merging BII and Bank Danamon, Temasek opted to sell the smaller bank, BII, to comply with Indonesian rules prohibiting foreign entities from controlling more than one Indonesian bank by end-2010, said Elvira Tjandrawinata, an analyst at state brokerage Danareksa in Jakarta. Maybank is the second Malaysian bank to venture in Indonesia after CIMB Bank, Malaysia's second-largest bank. CIMB bought a controlling stake in Bank Niaga, Indonesia's sixth-largest bank in 2002, and earlier this month it bought a 20 percent stake in Bank of Yingkou in China. Other Malaysian banks have also been venturing overseas. Hong Leong Bank, Malaysia's sixth largest bank, bought a 20 percent stake in China's Chengdu Bank, in 2007 and Public Bank, Malaysia's third-largest bank, bought Hong Kong-based Asia Commercial Bank in 2006.
Hefty premium
Some analysts questioned the amount Maybank is paying for the BII stake. "We believe that Maybank has overpaid tremendously," said Marcus Chan, analyst at CLSA Asia-Pacific Markets in Kuala Lumpur. "This values the Indonesian bank at 8.6 billion ringgit and, at 4.7 times 2007 price-to-book ratio and 4.2 times prospective 2008 price-to-book ratio, is a record valuation paid for an Indonesian bank. We believe that value creation will be long and difficult," Chan said. Maybank's Aminuddin defended the high price paid for the acquisition. "It is normal that you pay such a premium for a controlling stake. Maybank's aspires to be a regional bank. Indonesia as a market has a strong growth potential that we cannot miss," he said. Other analyst believe the premium could be justified as there are not many opportunities to acquire big banks in Indonesia. "There is a significant premium. I guess it is all about demand and supply," said Mulya Chandra, an analyst at CIMB-GK in Jakarta. "I think there are no more big banks for sale here except the state banks. That's the fact that has probably driven the valuation (up)," he said.
Determined buyer
Intense competition from other bidders may have also encouraged Maybank to put in a strong bid. "It looks like Maybank was very determined to get the deal through -- it put up a very attractive offer which was hard to turn down," said Pong Teng Siew, head of research of MIMB Investment Bank in Malaysia. Earlier media reports said Kookmin Bank and Bank of China were among the final three bidders for Temasek's stake in BII. Pong said his preliminary calculations suggest that Maybank is paying a premium of at least 11.2 percent for BII. "This is a substantial acquisition. The bank is poised for a major move outside Malaysia. It seems Maybank is going to make Indonesia its main operation centre for its overseas business," Pong said. Maybank has in the past unsuccessfully tried to buy other financial assets in Indonesia. In November, the Indonesian government rejected Maybank's proposal to acquire a 60 percent stake in PT Anugrah Life Insurance, a subsidiary of PT Panin Life Tbk, due to restrictions imposed on foreign companies. Panin Life controls Panin Bank, one of the top banks in Indonesia. Maybank said it has obtained the approval of Bank Negara, the Malaysian central bank, for the proposed acquisition. The deal will now await regulatory approval from Indonesia's central bank and from Maybank shareholders. Once the acquisition is completed, Maybank will make a general offer for the remaining 44 percent of BII, as required by the rules in Indonesia. Maybank said it will file its statement on the buyout offer, which is expected to cost 3.8 billion ringgit, with the Jakarta Stock Exchange and BII in due course. The premium paid by Maybank to the majority shareholders of BII should make it easier to convince minority shareholders to sell their shares, analysts in Jakarta said. "I am sure the majority shareholders would make a huge capital gain -- it is a clean exit," said Tjandrawinata of Danareksa. "As for the minority shareholders, I think they will sell their shares. What more upside could you expect?" Maybank shares were suspended from trading Wednesday and last traded Monday at 8.95 ringgit. Trading of Maybank shares will resume on Thursday. In Jakarta, BII shares finished Wednesday up 12 percent at 465 rupiah.
(1 US dollar = 1.38 Singapore dollars, 3.19 ringgit) jonathan.burgos@thomson.com aipeng.soo@thomson.com