Maybank-BII deal still hard to stomach: Analysts

 

The purchase amount (US$607.5 million for 89 per cent of Bank Ekonomi) to HSBC is like a drop in the ocean; they have the capital, says one analyst

HSBC Holdings plc's willingness to pay a high premium for an Indonesian lender this week still would not justify Malayan Banking Bhd's pricey Bank Internasional Indonesia (BII) deal, analysts said.

Similar to the 4.3 times book value Maybank is ultimately forking out for a sweetened deal to BII, HSBC is paying a steep premium to control Bank Ekonomi because banking assets have become scarce in Indonesia.

But still, it does not make Maybank's expensive BII deal look any easier to stomach, banking analysts in Kuala Lumpur said yesterday. The risk-reward profile between HSBC and Maybank differs vastly, they said.

"The purchase amount to HSBC is like a drop in the ocean. They have the capital," said one analyst.

The more than 100 banks in Indonesia have total assets of US$210.6 billion (RM745 billion), according to the central bank - or less than one tenth of HSBC's total assets of US$2.55 trillion (RM9 trillion).

Europe's biggest bank by market value on Monday said it will buy 89 per cent of Bank Ekonomi for US$607.5 million (RM2 billion), giving it a foothold in Southeast Asia's largest economy and a highly sought after banking market.

HSBC's offer values Indonesia's number 12 bank by market cap at slightly above four times its June 30 book value, according to media reports from Jakarta.

"Maybe it will make Maybank look slightly better if you only look at valuations, in the sense that it has not really overpaid. But in absolute terms, no," OSK Research analyst Keith Wee said.

Wee said the US$600-odd million for HSBC is very small relative to their asset size and earnings base.

"It's a risk they can well afford to take and HSBC has the funds. But for Maybank, it has to gear up because of the high price it is paying, and it is hard for it to shore up the capital with cheap fundings in today's market," Wee said.

Moreover, Maybank, which has gone on a shopping spree to commit about RM11 billion for both BII and Pakistan's MCB Bank Ltd shortly before the global crisis worsened, has took on significantly higher risks than HSBC, Wee said.

"The sum was huge relative to Maybank's balance sheet, market cap, earnings and shareholder's fund," Wee said.

In contrast, HSBC's abandoned US$6 billion (RM21 billion) purchase of Korea Exchange Bank last month has given the banking giant more room to scoop up assets, he added.

Maybank shares have lost 42 per cent this year, outpacing the 37 per cent slide in the Kuala Lumpur Composite Index.

"What Maybank is doing (to expand) is not wrong, just that the timing is bad. Although the BII purchase will pay off after five years or so, the market is jittery and we only take a 12-month view," Wee said.

With inflation remaining high in Indonesia and a potential short-term funding problem that the country may face amid the financial crisis, he foresees more headwinds in banking operations there.