PETALING JAYA: RHB Capital Bhd (RHB Cap), the fourth largest banking group in the country, may abort its plans to acquire 40% stake in Bank Mestika Dharma of Indonesia for RM651mil, a move which will delay its expansion into the country, according to analysts.
In responding to queries from StarBiz on RHB Cap’s planned acquisition of Bank Mestika, the banking group said: “We will make the necessary announcements if there are any updates.”
The conditional agreement between RHB Cap and the Financial Services Authority of Indonesia (OJK) for RHB Cap to acquire the 40% stake in the Indonesian bank will expire this month. Industry observers opined that if the banking group were to abort the deal, it could be due to RHB Cap wanting a controlling stake in the Indonesian lender or some pricing issues.
Hong Leong Investment Bank analyst Low Yee Huap, in a recent note, felt RHB Cap would unlikely finalise the deal by this month. “Although it is eyeing only a 40% stake, the deal involved RHB taking control of the bank.
“This would enable it to consolidate Bank Mestika and eliminate the impact on capital ratio (due to deduction in investments), otherwise, it may not continue pursuing the acquisition. If there are no positive developments by this month, the company may not seek further extension for the deal,’’ he said.
CIMB Research analyst Winson Ng in a research report said there could be a possibility of RHB Cap walking away from the Mestika deal. At a conference call in conjunction with the release of RHB Cap’s first quarter results, he said: “We are negatively surprised to learn from the management that RHB Cap may terminate the proposal to acquire Bank Mestika, though the decision has not been made. Such a move could be negative in the immediate term as it will somewhat slowdown the progress of its regional expansion,’’ he noted.
To recap, RHB Cap in 2009 had announced plans to buy an 80% stake in Bank Mestika but had to scale down to 40% when Indonesia introduced a cap on foreign bank shareholding in 2012.
RHB Bank Bhd managing director, who is also deputy group managing director, Datuk Khairussaleh Ramli in a media report in April when asked if the group planned to renegotiate the price (of Bank Mestika) said the group was “so far sticking to what it had agreed with the vendor, on the basis that we think it’s a solid bank.”
Another analyst from MIDF Research agreed that calling off the acquisition would not have much impact on RHB Cap’s bottomline as Bank Mestika is a relatively small bank compared to Bank Internasional Indonesia (BII) or CIMB Niaga. Overseas operations currently contribute about 10% to the RHB group’s earnings, he noted.
However, he added that the move could impact its expansion in the commercial banking space in Indonesia even though it had an investment banking licence there.
An analyst with a bank-backed brokerage also concurred that the move would not impact RHB Cap’s bottomline in the short term.
“The move could affect its expansion into the country. Although Bank Mestika is a relatively small lender as there are over 100 banks in Indonesia, the proposed acquisition would provide a platform for its expansion into the country. In the short term, there will be no financial impact on RHB Capital. But this could delay the banking group’s aspirations to become one of the leading financial services providers in Asean by 2020,’’ he noted.
The analyst from MIDF said RHB Cap hinted at the conference call last week that it would decide over the next couple of weeks whether to extend the agreement with OJK. “It may not even extend it if it sees a low chance of closing the deal,” he noted.
The group is currently still awaiting OJK to revert to its decision on the deal..