AFG ... Aug12

Temasek’s partnership with Malaysian privately held Langkah Bahafia Sdn Bhd is complicating the Singapore investment agency’s bid to divest its investment in AFG to DBS bank Ltd. One major bugbear to the proposed divestment plan is that the transaction would comply not with domestic banking rules that limit ownership by any single group in a financial institution to 20%. Langkah Bahagia, a private entity linked to former minister Tun Daim said Temasek control of 29.06% stake in AFG through a JV concern called Vertical Theme Sdn Bhd. Temasek’s plan to sell 49% interest in Vertical Theme to DBS would not resolve shareholding issues at AFG. The plan is also being complicated by Langkah Bahagia’s desire to sell its indirect interest in AFG.

BNM wants a transaction that will help comply with the shareholding spread at AFG. DBS cannot take the whole block and finding a partner to take over Langkah Bahagia’s stake does not change the structure.

In early April 2012,AFG noted that it had received notice from Temasek unit Duxton Investments Pte Ltd that DBS had obtained approval from BNM to start negotiations on the planned acquisition. DBS had proposed to acquire Duxton’s 49% stake in Vertical Theme, which in turn owns 29.06% stake in AFG. As such Duxton is effective holding a 14.2% stake in AFG. Vertical Theme is a partnership between Temasek’s Duxton and Langkah Bahagia. Should the talks succeed, DBS will own 14.2% stake in AFG through Vertical Theme.

The Singapore financial group could hold 29.1% stake in AFG should it acquire the balance of 51% ownership in Vertical Theme from Langkah Bahagia.

There has been speculation in 2011 that DBS’ entry into Malaysia includes the acquisition of RHB by parties related to DBS and then merging it with AFG. This would result in Temasek and RHB’s largest shareholder EPF holding stakes in the parent company of the merged banks. It is understood that the plan did not see the light of day then, but the rumor mill has it that this plan is currently (Aug 2012) being explored.