Tuesday, October 20, 2009

RHB Bank Buys Bank Mestika Dharma

FinanceAsia & Business Times:

Malaysia's RHB Capital will buy 80% of Indonesia's Bank Mestika Dharma for Rp3.118 trillion ($329 million). RHB will fund the deal through a RM$1.3 billion ($384 million) rights issue.

RHB Capital is paying 3.5 times Bank Mestika's book value of Rp1.114 trillion as per December 31, 2008, and 23 times the Indonesian bank's earnings for calendar 2008.

RHB Capital is the
holding company of RHB banking group, the fourth-largest financial services provider in Malaysia. RHB Bank is the largest entity in the group. In 2008 RHB Bank earned RM$1.3 billion before tax, registering growth of 45% over the previous financial year.

Malaysia's Employees Provident Fund (EPF) is the largest shareholder in RHB Capital with a 57% stake. Following a sell down by EPF last year, Abu Dhabi Commercial Bank (ADCB) owns 25%.

RHB Capital was advised on the Bank Mestika acquisition by RHB investment bank and Rothschild. It will be advised by RHB investment bank and CIMB on the rights issue.

RHB said in a Bursa Malaysia filing yesterday that the price took into consideration "the strategic importance of Indonesia as a key market in RHB Capital's regional expansion strategy, in view of its attractive macroeconomic factors, strong cultural similarities and economic inter-connections with Malaysia, as well as its close geographical proximity to Malaysia".

Bank Mestika is headquartered in Medan in Indonesia and has been operating since 1956. It obtained a foreign exchange banking license in 1995, although it has not yet started foreign currency banking. Bank Mestika has a network of 50 branches across Indonesia. It offers trade finance, home loans, automobile loans and commercial loans. On the corporate side, it serves primarily small and medium-sized enterprises.

RHB has also negotiated an option to buy another 9% of Bank Mestika for Rp351 billion plus a performance-related payment of up to 15% per annum, compounded annually but adjusted for dividends earned by RHB. RHB can exercise the option any time between three and seven years from the closing of the acquisition. The acquisition is expected to be completed by the second quarter of 2010.

RHB has not yet decided at what price it will offer existing shareholders rights shares. RHB indicated that the price will be at a discount of between 20% and 30% to the theoretical ex-rights price (Terp), based on the five-day volume-weighted average price of RHB's shares just before the board meeting to fix the rights price. The rights issue will be launched only if the acquisition proceeds according to plan. The rights shares being offered are renounceable, thus could be a way for ADCB to further consolidate its stake in RHB Capital. ADCB has said it is keen to enhance its presence in new markets.

RHB Capital's director Tan Sri Azlan Zainol said Thailand is next on its regional expansion, though its immediate plan is to grow via the only branch there and buying a Thai lender is "not yet on its radar". RHB Capital also has branches in Singapore and Brunei and plans to apply for a full banking licence in Vietnam.

It aims to boost overseas earnings contribution to 40 per cent over the long term and aspires to be among the top three lenders in the region by 2020.

RHB Capital currently earns 4 per cent of profits from abroad and the purchase of Bank Mestika will double this. There are more than 100 banks in populous Indonesia, but the market is under-served with a low penetration rate of banking services. Indonesian lenders consistently enjoy high net interest margin of over 5 per cent, more than double that of their peers in Malaysia.

The bank is well-managed, profitable and well-capitalised with more than 15 per cent of return on equity (ROE) in the past four years, Azlan said. ROE is a measure of how well profits are being reinvested.

Last year, Malayan Banking Bhd paid 4.3 times book for Bank Internasional Indonesia in a highly criticised deal, while HSBC Holdings plc forked out slightly more than four times book value for Bank Ekonomi, 12th biggest by market value, last October.

RHB Capital has agreed to buy 80 per cent of Bank Mestika from tightly-held PT Mestika Benua Mas after a competitive bidding. The purchase is expected to be completed by the second quarter of next year, and is conditional upon the successful listing of Bank Mestika on the Indonesian bourse. Bank Mestika has 50 branches and six cash outlets, almost all in Sumatra. The lender made a net profit of RM63 million last year.

p/s photos: Yu Takahashi

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