Published June 11, 2009

Kenanga sees overseas M&As on the rise

This is due to asset prices in M'sia not falling as sharply as other Asian markets

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(KUALA LUMPUR) Cash- rich Malaysian firms are looking abroad for merger and acquisition (M&A) opportunities because asset prices at home have not fallen as sharply as in other Asian markets, investment bank K&N Kenanga said.

M'sia's stock market was one of the best performers in Asia during last year's global financial market meltdown.

Kenanga is advising several deals that involve Malaysian companies in the infrastructure and utilities sectors looking to buy assets overseas, said its group director Zafrul Aziz.

These transactions, valued at about RM250 million (S$103 million) each, could materialise over the next six months, said Mr Zafrul.

'If you look at the price-earnings multiples for Malaysian companies versus companies listed elsewhere, we are considered quite expensive,' Mr Zafrul told Reuters in an interview on Tuesday.

'So to do domestic M&As is not that easy. In fact, the M&A deals that we are advising are more of cross-border M&As,' said the banker.

Malaysia's stock market was one of the best performers in Asia during last year's global financial market meltdown, having dropped only 39 per cent, compared with other South-east Asian markets where prices had nearly halved.

Malaysian shares are trading at a PE multiple of 15.3 times, more expensive than Indonesia's 13.7 times, Philippines' 12.3 times and Thailand's 12.1 times, Thomson Reuters data showed.

For stocks in the public utilities sector, companies in Malaysia are asking for a PE multiple of 15.1 times, significantly higher than their peers in Indonesia, Thailand and the Philippines where utilities companies are trading at between 13.7 times and 10.7 times, the data showed.

'Malaysian companies have the money to expand overseas and they have the support from the local banks. Definitely, I think now banks are lending more for these kind of transactions,' said Mr Zafrul.

Malaysian banks had not been directly affected by the sub-prime crisis in the US and Europe.

No Malaysian banks had direct exposure to toxic housing assets that brought down some of the largest names in the global banking industry.

Mr Zafrul said the government's recent decision to allow foreigners to own up to 70 per cent of Malaysian investment banks is likely to stir up M&A activity in the banks.

'The problem with foreign banks now is that most of them are not allowed to invest in any banks if they don't have control. Under previous ruling, they cannot come in,' said Mr Zafrul.

Share prices of smaller, standalone investment banks listed on the local bourse have risen sharply since the new ruling was unveiled in April, he said.

Since the announcement, OSK Holdings has gained 27 per cent, Kenanga is up 42 per cent and TA Enterprise is up 34 per cent.

The wider market was up 11 per cent during the same period. -- Reuters