Published September 29, 2008

MALAYSIA INSIGHT
Yet another spanner in the works for Maybank-BII deal

Bank Negara's last minute condition has virtually condemned the transaction to doom

By PAULINE NG
KL CORRESPONDENT
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IT APPEARED out of the blue, but in the context of the many twists and turns which have come to characterise the Maybank-Bank Internasional Indonesia (BII) saga, it was perhaps yet another unpredictability.

To many however, Bank Negara's last minute imposition of new conditions for its approval for Maybank's proposed purchase of BII, was the ultimate curve ball - unexpected and uncharacteristic of the Malaysian central bank.

On hindsight, going by the events of the past six months, if there was a transaction that looked like it was going to be problematic, it was the proposed RM8.6 billion (S$3.6 billion) deal.

Also on hindsight, Maybank's aggressive tender for the Indonesian bank at 4.7 times valuation - about twice the average valuations of Indonesian banks at the time in March - was unwise, given the prevailing fears of a US sub-prime implosion. That the deal involved Malaysian, Indonesian, Singaporean and Korean parties only made it more complex.

Indonesia's market regulator Bapepam threw the first spanner into the works by introducing new takeover rules a few months after Maybank had signed with Fullerton Financial and Kookmin Bank to buy Sorak Financial which controls BII. Under the new rules, Maybank would have to sell down 20 per cent of BII within two years of its takeover, which could have led to an estimated impairment of some RM3.5 billion in its investment.



Arguably, the deal might have been concluded earlier if not for Bapepam's indecisive flip-flops prior to finally granting Maybank an extension to sell down the BII shares.

But by now qualifying that its reinstated approval after Bapepam relaxed its new rules for Maybank is now subject to an extension of the deadline to complete, plus a lower purchase price because of the current global financial trauma, Bank Negara has virtually condemned the deal to doom. Its decision has also left it with not inconsiderable egg on its face.

Because Bank Negara is regarded as one of the country's better run institutions - current governor Zeti Akhtar Aziz has been named central banker of the year more than once - many conclude that it was forced to act out of character on fears that the financial soundness of Malaysia's biggest bank would be significantly affected by the acquisition. The ramifications of severe impairment to Maybank and its effect on the rest of the country's financial system was a risk that it was not willing to take. Its reassessment likely led it to conclude that the nation's interests had to be paramount - any tarnish to its credibility notwithstanding.

In the current global financial trauma, one only needs to look to how the US has defended its recent bailouts of financial institutions on the verge of bankruptcy. Despite previously railing at bailouts as the antithesis of free markets, it is on the verge of approving a record US$700 billion fund to assist entities compromised by the sub-prime crisis, its rationale being that not to act would do greater damage to its financial system and economy - and by extension, the world economy.

The loss of Maybank's RM480 million deposit to Fullerton for non-fulfilment aside, there will be other collateral damage to count.

A $236.4 million 'rebate' by Temasek Holdings, which owns Fullerton, was not accepted by Maybank last Friday when the deal was to be concluded. Fullerton has said that it intends to reserve its rights under the share sale agreement.

The harder costs to count include the loss of credibility and a backlash in relations. Judging from the initial noises, Malaysia will have to move quickly to minimise the fallout with its neighbours.