Published October 20, 2009

RHB Capital eyes stake in Bank Mestika

Acquisition will let it secure a toehold in the region's fastest growing market

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S RHB Capital has proposed acquiring 80 per cent of Indonesia's Medan-based PT Bank Mestika Dharma for RM1.16 billion (S$479.3 million) in a move to secure a toehold in the region's fastest growing market.

Mr Azlan: Was candid in his admission that RHB had been left behind in making inroads into Indonesia

The country's fourth largest financial group is proposing a rights issue of 361 million shares at an indicative price of RM3.60 a share to raise up to RM1.3 billion to finance the planned acquisition.

However, Bank Mestika is planning an initial public offering of its shares by the second quarter of next year, after which RHB Cap would acquire 80 per cent from its holding company PT Mestika Benua Mas, with an option of buying an additional 9 per cent for RM131 million, the option exercisable between the third and seventh anniversary date of Bank Mestika's acquisition. Indonesia's minimum public share float is 10 per cent.

Bank Mestika has 56 branches, mainly in Sumatra, and only 3-4 per cent market share. RHB Cap director and RHB Bank chairman Azlan Zainol was quick to play down Bank Mestika's relative size. 'We don't need to buy a big bank, we can grow with a mid-sized bank,' he said yesterday at a press briefing.

But he was candid in his admission that RHB, which has branches in Singapore, Thailand and Brunei, had 'obviously been left behind' in making inroads into Indonesia. Even so, he maintained that there was never a right or wrong time to enter. '(But) if you want to be a major player (in the region), you must be in Indonesia.'

Bank Mestika's earnings would double RHB group's offshore income to 8 per cent and, according to group managing director Tajuddin Atan, provide the platform for its next billion. The group made a profit of slightly over RM1 billion in FY08.

At RM1.16 billion, Bank Mestika which has total assets of RM1.9 billion and a net profit of RM32 million as at the first half of this year, is valued at 3.5x book and 20x price earnings. In the past four years, its return on equity was above 15 per cent, Mr Tajuddin noted, stressing that the acquisition was made after a competitive bid.

RHB's proposed acquisition is unlikely to elicit the negativity that Malaysia's biggest banking group Maybank drew following its near RM8 billion deal for Bank Internasional Indonesia (BII). Its payment of 4.3 times book last year when assets were going for much less because of the global financial crisis was heavily criticised. Maybank also posted lower earnings after making an impairment loss of RM1.62 billion for BII in its fiscal year ended June.

Maybank's purchase of BII was seen as playing catch-up with CIMB which has a presence in Indonesia via Bank Niaga. Stockbroker OSK Research said that RHB's buy, though smallish, is 'a positive step forward for the group as it serves as a sign of the group's longer-term aspirations of regionalising its operations'.

Mr Azlan joked that Bank Mestika would be renamed Bank Mesti Kaya (Must Get Rich). He is chief executive of the Employees Provident Fund (EPF) which owns 57 per cent of RHB Cap. The EPF had scored a coup of sorts when it sold a quarter of RHB Cap to Abu Dhabi Commercial Bank last year for RM3.9 billion or RM7.20 per share. The stock was last traded at RM5.70.

Bank Mestika president commissioner Witarsa Oemar said that RHB would help the bank grow nationally and that he planned to use the proceeds from the sale to scour for opportunities within the financial sector - perhaps teaming up with RHB overseas - or in other sectors.