ADCB, RHB Cap to cash in on banking synergy

ABU DHABI Commercial Bank (ADCB), RHB Capital Bhd's new second largest shareholder, is bringing to the table tremendous opportunities for Islamic financing in the Middle East.

ADCB chairman Saeed Mubarak Rashid Al Hajeri said Islamic bonds or sukuk, in particular, have the potential to outgrow conventional financing, given the rapid economic growth in the region.

"We have all these businesses lined up to be captured by both ADCB and RHB Capital. We can syndicate huge sukuk loans which today in the UAE market are captured by people like Barclays," he told reporters at a briefing in Putrajaya yesterday.

According to recent reports, the United Arab Emirates (UAE) accounts for 37 per cent of the total US$2 trillion (RM6.3 trillion) worth of potential investment in the Gulf region's construction, oil and gas, petrochemicals, power and water and waste sectors.

Saeed Mubarak said the sukuk market in Abu Dhabi is expected to account for 30 per cent of total financing in the near future, from just 10 per cent now, and ADCB and RHB Capital could create vehicles to capture this growing business.

"Our goal is for ADCB and RHB Capital, together, to be the biggest player of the sukuk market globally," he added.

ADCB yesterday signed an agreement with the Employees Provident Fund (EPF) to acquire a 24 per cent stake in RHB Capital for RM3.876 billion.

Saeed Mubarak said ADCB was attracted to RHB Capital's restructuring story and saw similarities with its own five-year restructuring plan completed in 2007.

"We think RHB Capital's potential is much bigger than what it is today, although it is already the fourth largest bank here. We like their plans to double profit by 2011 ... very aggressive, but very possible. My personal belief is that they will reach that easily," he said.

Saeed Mubarak said while mergers and acquisitions (M&As) might feature in RHB Capital's long-term growth plans, the profit-doubling target is based mostly on improving business efficiency and organic growth.

"We were a very similar fragmented organisation. There are a lot of synergies in the organisation that could be utilised. There is a lot of duplication. I think the EPF plans for RHB Capital are very positive. I am very confident they can deliver.

"All they need are the support of other shareholders on the board. We're in line. We like their plan. Our senior management, our CEO and deputy CEO, will be on the board. This is a very high level, very important initiative for us," he said.

Saeed Mubarak said while some people might question the huge premium being paid for the RHB Capital stake, the price to book value is cheaper compared to other banks in the region and the Middle East. As an investor, ADCB has also taken into consideration the future value of the bank.

"We know that today, the efficiency in RHB is below market. In our assumption we look at future value. We're not investing to make a quick buck or short-term profit. We're a long-term investor. We see this as a 'buy and hold'," he said.

Saeed Mubarak said ADCB expects its investment in RHB Capital to generate return on equity of at least 20 per cent within the next three years, and after that begin to outperform its peers.

The Government of Abu Dhabi, through Abu Dhabi Investment Authority (ADIA), holds 65 per cent of ADCB, while the rest is held by various UAE institutions and nationals. ADCB's market capitalisation as at end September 2005 was US$16.1 billion (RM50.4).

ADCB is a diversified full service bank. Other than banking services that span corporate, retail and commercial banking, it is active in the areas of Treasury derivatives, infrastructure finance, private banking and wealth management.