Monday, July 2, 2012

Affin ... Jul12


The BEA dispelled speculation that it plans to sell a 23.5% stake in Affin, a development that pours cold water on suggestions of a possible tie up between the Armed Forces backed bank and the Hong Leong group. BEA chairman and CEO Sir David Li said that in fact hopes to increase its presence in Affin by increasing its stake to 25% which is the max allowed to hold. It considers its stake In Affin a strategic investment

Meanwhile David Li had said CaxiaBank has assured him that it is not selling. On Guoco Group’s position in BEA, Li said he has not any dialogue with the group on whether it would be interested in increasing its interest in the bank and Li welcomes Guoco as shareholders.

It was reported earlier that Bank of East Asia (BEA) could release its 23.5 percent stake in Affin Holdings Bhd as it shifts its focus to Greater China. A shift in BEA’s strategy to focus on Greater China could mean that is no longer keen on leveraging on its relationship with Affin. This leads to the conjecture that it may release its stake in Affin. It could result in the meger of Affin Holdings Bhd and HLB Bhd.

Estimating the acquisition cost of BEA’s stake in Affin at RM858 million.

Affin’s other major shareholders include Malaysia’s Armed Forces Fund Board with a 35.2 percent stake and palm oil-to-heavy industries conglomerate Boustead Holdings Bhd with 20.7 percent.

BEA has disposed of its businesses in the US and Canada where it once sought growth overseas in areas with large ethnic Chinese populations. Furthermore, media reports have indicated that BEA’s largest shareholder and Spain’s fourth largest bank, Caxia Bank, may cut its stake in the group. However, it is difficult to ascertain if Spanish regulators would force Caxia Bank to cut its stake to shore up capital and provisions to counter asset quality risks. At the very least, regulators may stop Caxia from increasing its stake in BEA. This implies a higher probability for Guoco Group, BEA’s second largest shareholder to pursue BEA for a potential takeover.

In the past three years (2009-2012), Guoco has been steadily increasing its stake in BEA to 15.3% stake as at March 31, 2012 fuelling speculation it was trying to gain control of BEA. Guoco faces one less hurdle if Caxia sells its 17% stake in BEW. Assuming Guoco does control of BEA, HLBB would emerge as a distant cousin of Affin’s. Would HLBB merge with Affin or would Affin be divested?

Market observers noted that in the current (June 2012) situation, despite a common indirect shareholder via Guoco, there would be no compulsion for HLBB to merge with Affin as Guoco’s stake in BEA is only an investment rather than a strategic stake. Guoco owns 25% stake of HLFG Bhd which in turn owns 61.3% stake in HLBB.

Even if BEA decides to sell its stake in Affin, HLBB may not necessarily be its acquirer, especially since the group completed the acquisition of EON capital bHd only in 2011 and still reaping merger synergies. It also saw little accretion to this marriage, contrary to the HLBB-EON Cap merger.

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