Quek sets stage for more bank deals

 

Malaysian billionaire Quek Leng Chan’s latest gamble to gobble up one of the country’s smallest banks could set the stage for a new round of dealmaking in the banking sector.

Quek’s Hong Leong Bank , Malaysia’s sixth-largest lender, made an unsolicited US$1.5 billion bid last week for EON Capital’s banking unit, aiming to create the country’s fourth-largest banking group.

The deal, if successful, will give Hong Leong financial muscle to complement its regional aspirations, placing it behind Malayan Banking, CIMB Group and Public Bank.

If the merger pans out, smaller banks such as Affin Holding and Alliance Financial Group, owned by Singapore state investor Temasek, may become takeover targets in the banking sector currently made up of nine players.

The industry is highly competitive, with banks aggressively undercutting each other to gain market share, forcing some players to look for acquisitions in the region.

“It’s possible that this will spark another round of consolidation. Others may start looking around at what’s available,” said Ang Kok Heng, chief investment officer at Phillip Capital Management.

Quek’s bid, which faces resistance from EON’s shareholders, values the lender at 1.4 times book, or at the lower end of recent bank mergers in Malaysia.

On Monday, EON’s board said it sought clarification from Hong Leong on its bid, noting the offer price “significantly undervalues” EON.

The 68-year-old Quek, ranked by Forbes magazine as Malaysia’s sixth-richest man with US$2.3 billion in assets last year, is not known to pay a large premium for acquisitions.

“Quek has shown that he’s prepared to walk away from deals if the price is not right,” said Teoh Kok Lin, managing director of Kuala Lumpur-based Singular Asset Management.

Calls made by Reuters to Hong Leong were unanswered, while Quek was not immediately available for comment.

EON has a fragmented shareholding structure consisting of five substantial owners, including Hong Kong-based private equity fund Primus Pacific Partners.

Reuters attempts to reach the shareholders for a response to the offer were unsuccessful.

The planned investment by Quek, who has a penchant for cigars and high-stakes gambling, comes as Malaysia tries to boost confidence in the economy.

Spooked by the slow but steady shifting of funds abroad, Prime Minister Datuk Seri Najib Razak is believed to have met Malaysia’s business tycoons in December to persuade them to invest locally.

NOT A DONE DEAL

Analysts and fund managers said EON’s shareholders may allow the offer to lapse to force Quek to sweeten the deal or they may seek other bidders for the business.

“If the offer is too low, the shareholders won’t be interested to sell. Why should they take the first offer that comes along?” said Phillip Capital’s Ang, who helps manage about US$200 million in assets.

Hong Leong’s loans and deposits mix will improve if the merger goes through, but its asset quality and profitability ratios will suffer, given EON’s large exposure to the retail segment.

“We believe the potential synergies are relatively limited as there could be further pressure on provisions while savings on overheads are expected to be relatively low,” UBS said in a report issued on Friday.

Goldman Sachs is advising EON Capital, while Hong Leong Bank is being advised by CIMB.

Quek heads conglomerate Hong Leong Group, which has interests in real estate, property and financial services and has been investing in China and Vietnam. -- Reuters