BIMB Holdings to pay US$324.78 million for stake in Bank Islam Malaysia? (By IFN)

Wednesday 10^th October 2012

MALAYSIA: BIMB Holdings, which has received approval-in-principle from the central bank, Bank Negara Malaysia, to start talks with Dubai Financial Group (DFG) to take over its 30.5% shareholding in Bank Islam Malaysia, could pay a minimum of RM1 billion (US$324.78 million) for the stake. “The average price-to-book value (P/BV) for previous transactions for banking mergers and acquisitions in Malaysia is about 1.8 times. Pegging this to Bank Islam’s book value of RM2.79 billion (US$906.16 million) as at the end of December 2011, a 30.5% stake in Bank Islam would cost RM1.53 billion (US$496.93 million),” said CIMB Research. Maybank IB Research, which has taken into account that DFG’s interest in Bank Islam is believed to form collateral for US$330 million-worth of financing for DFG’s parent, Dubai Group, estimated that Bank Islam’s P/BV as at the end of June this year stands at around 1.15 times. However, given Dubai Group’s need for cash, with US$10 billion-worth of debt to restructure, the research firm said that: “We would think that a P/BV of 1.2-1.3 times for Bank Islam would thus be amenable to all parties.” This translates into an acquisition cost of between RM1.1-1.2 billion (US$357.29-389.77 million) for the 30.5% stake. BIMB’s potential acquisition of the stake in Bank Islam, which could increase its ownership in the bank to 81.5%, is seen as a positive development as the purchase would pave the way for larger earnings contributions from the bank. However, a price tag of at least RM1 billion means BIMB would have to pay more for a smaller stake in Bank Islam than the RM828 million (US$268.99 million) DFG paid for its original 40% interest. DFG’s shareholding in Bank Islam was diluted to 30.5% in 2010 after it chose not to participate in a cash call by the bank. Analysts also remain mixed on how BIMB would pay for the transaction, with CIMB Research believing that the deal could be part-financed by the issuance of new capital. This is as the assumed acquisition price of RM1.53 billion would lead to a “drastic” reduction in BIMB’s capital ratios. Maybank IB Research said that the purchase would likely be funded via borrowings, adding that: “We do not foresee the need for a capital raising exercise given the group’s strong capital ratios – core capital ratio of 1.44% and risk-weighted capital ratio of 15.6%.”