Deutsche Bank to exit Kenanga, Tokai Tokyo enters

K&N Kenanga group managing director Datuk Chay Wai Leong(pic), in welcoming Tokai Tokyo Financial as a shareholder, described the Japanese firm taking up a stake in the non-bank-backed investment firm as

PETALING JAYA: Deutsche Bank AG is divesting its 13.84% stake in Malaysia’s largest independent investment bank, K&N Kenanga Holdings Bhd, with the first block of 4.9% being sold to Tokai Tokyo Financial Holdings Inc.

The disposal done through an off market deal yesterday marks the withdrawal of Deutsche Bank, which made its entry into K&N Kenanga in 1991 when it acquired a strategic stake, believed to be 30%, from John Hancock International Holdings Inc.

The sale is a prelude to more disposals from Deutsche Bank of its stakes in other financial institutions in the region. Notably, Deutsche Bank has a 51% stake in Singapore-based DMG & Partners Securities Pte Ltd which it is looking to dispose of. DMG is a venture between Malaysia’s RHB Capital Bhd and Deutsche Bank Group.

K&N Kenanga group managing director Datuk Chay Wai Leong, in welcoming Tokai Tokyo Financial as a shareholder, described the Japanese firm taking up a stake in the non-bank-backed investment firm as “sealing a meaningful partnership”.

“This is a follow-up of a business co-operation agreement with the broker from Japan that we signed earlier. Unlike other agreements, this has concluded with Tokai Tokyo taking up a stake in K&N Kenanga,” said Chay.

He said that it provided an opportunity for Japanese investors to look at Malaysian companies and Malaysian investors with a window on Japanese investments.

“Our strategy to grow is through strategic alliances with partners in other countries. The cost is lower and more effective compared with opening up small offices in other countries,” said Chay.

Deutsche Bank has followed other international banks in disposing of minority interest in small financial institutions as part of a plan to optimise its capital structure under the Basel III regulations.

Among the reasons are the requirement of Basel III capital rules where banks are required to hold capital for minority stakes in other financial institutions, hence making the investment less attractive.

In this respect, Deutsche Bank has been reported to be reviewing its 3-billion-euro stake in Chinese lender Hua Xia as part of the German bank’s new strategy to comply with strict new Basel III financial rules. Deutsche Bank first bought into Hua Xia in 2006 and, over the subsequent years, built up a 19.99% stake in the company.

Tokai Tokyo’s entry into K&N Kenanga marks increasing Japanese interest in Malaysian financial institutions. Tokai Tokyo is believed to be the buyer of a block of 36.51 million shares, or a 4.9% stake, in K&N Kenanga that crossed at 65 sen.

On Wednesday, Affin Holdings Bhd said Japan-based Investment Bank Daiwa Securities Group Inc would begin talks to acquire a minority stake in Affin Hwang Investment Bank Bhd after getting the green light from Bank Negara to commence negotiations.

Tokai Tokyo is one of the leading investment banking groups in Japan, providing equity broking, asset management and wealth management solutions. It has affiliate partners in major markets like the United States, Hong Kong, Singapore, the Philippines, and now Malaysia.

Year to date, K&N Kenanga is up 20% at 74.5 sen.

It closed yesterday up 2.5 sen to 74.5 sen on volume of 5.72 million shares. At this price, the stock is trading at a 39% discount to its net tangible asset of RM1.17.

Deutsche Bank’s 13.84% equity interest in K&N Kenanga is valued at about RM66mil based on the crossing price of 65 sen.

Initially, there was speculation that Cahya Mata Sarawak Bhd (CMS) would take up Deutsche Bank’s stake, considering that it already was the biggest stakeholder in the company with a 25.07% stake.

K&N Kenanga’s founder, Tengku Datuk Paduka Noor Zakiah Tengku Ismail, is the third largest shareholder with a 13.82% stake.

K&N Kenanga is one of the top three stockbrokers in terms of industry market share with a branch network of more than 30 and the largest network of remisiers in the country. It is the largest independent investment bank by equity trading volume and value.

K&N Kenanga was founded in 1973. It expanded after buying ECM Libra Financial Group Bhd’s investment banking unit in 2012 and acquiring control of ING Groep NV’s local fund management business last year. It is looking to expand outside Malaysia, where it faces rising competition.

On its agreement with Tokai Tokyo, the potential collaboration between the two include supplying securities products and services in Japan and Malaysia, sharing business and economic information in both countries and helping clients to fulfil their business needs by arranging on-site visits and meeting with firms.

The cooperation shall be a non-exclusive deal for an initial term of one year from the date of the agreement.

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