The end of the Daim era

  • Analyst Reports
  • Saturday, 16 Apr 2016

Change of ownership: Alliance Bank’s headquarters in Kuala Lumpur. The change of ownership of Langkah Bahagia marks the end of the era of Daim and his interest in banking in Malaysia.

THE recent changes at the shareholding in Langkah Bahagia Sdn Bhd, the single largest shareholder in Alliance Financial Group Bhd (AFG), marks the end of the Tun Daim Zainuddin era in the local banking scene.

Three Malaysians who are seen as friendly to Temasek Holdings Pte Ltd, the investment arm of Singapore, acquired Langkah Bahagia from associates of Daim.

Langkah Bahagia is the single largest shareholder in AFG through Vertical Theme Sdn Bhd, which, in turn, has a 29% stake in the bank. Langkah Bahagia has a 51% stake in Vertical Theme, while Temasek’s Duxton Investments Pte Ltd holds the remaining 49%.

Although the bespectacled and slightly-hunched former Finance Minister had publicly stated that he had divested his stake in Langkah Bahagia before rejoining the Government for the second time in 1998, the view then and until the change last week was that the new owners were merely his close associates.

Having served as Finance Minister from mid-1984 to 1991, Daim, who also held the position of Umno Treasurer, was seen as Malaysia’s most powerful financial wizard with a penchant for banking.

His family used to control United Malayan Banking Corp (which then became Sime Bank) which was sold in 1986.

He re-emerged in the Malaysian banking sector with the purchase of Hock Hua Bank (Sabah) in May 1997. That was the start of the economic crisis that hit Malaysia for the next 18 months. Langkah Bahagia was the vehicle used to purchase Hock Hua Bank.

Although Daim’s name has never appeared in the list of AFG shareholders, it is a bank closely identified to him.

That is largely due to the survival of the bank during the banking consolidation period post-1998 economic crisis and Langkah Bahagia emerging as the controlling shareholder.

In fact, the emergence of AFG as a banking group took place in the aftermath of the crisis during the consolidation of the banking sector where Daim played a major role.

The-then Prime Minister, Tun Dr Mahathir Mohamad, summoned Daim to serve the Government as the head of the National Economic Action Committee (NEAC) that was in charge of restructuring the economy ravaged by the currency crisis.

It was his second tour of duty with the Government after having retired as Finance Minister in 1991.

AFG was then known as Multi Purpose Bank and amongst the smallest bank in a fragmented sector that was knocked out cold by rising bad loans. There were some 40 banks and the Government decided to consolidate the financial institutions into 10 groups.

Among the 10 was Multi Purpose Bank. It merged with five other banks to form what is called AFG today. One of the banks that Multi Purpose Bank merged with was Hock Hua Bank of Sabah that saw the elevation of Langkah Bahagia to a bigger platform.

The consolidation did not go down well with local bankers, as the initial plan by the NEAC was to have only six banking groups. However, the story goes that at least two prominent local bankers made their case to Dr Mahathir when he was on his way to London and it was enlarged to 10.

Dr Mahathir’s decision was announced from London. It was seen as something that over-ruled the NEAC. Daim retired for the second time in 2001 in the midst of the banking consolidation process. Some four years later, Temasek came into AFG.

The new owners of Langkah Bahagia are Ong Beng Seng, who is famous for his chain of hotels, corporate adviser Seow Lun Hoo and Ong Tiong Sin. Beng Seng and Tiong Sin, who has a large private equity firm, are based in Singapore, while Seow has done some notable corporate advisory work, including some deals that involve Temasek.

For now, the changes in the bank allow for a firmer shareholding structure of Malaysia’s smallest financial institution ranked by assets, a possibility of moving up the ladder from its current ranking and perchance even the entry of more institutional shareholders in future.

Since Temasek came into the picture in 2005, AFG has been in a unique situation. It is the only bank that is not managed by the major shareholders. Although Langkah Bahagia has a controlling stake in AFG, the management is left largely to Tamasek.

Why and how this came about is largely obscure, but it is likely the terms of the partnership between Langkah Bahagia and Duxton that set up Vertical Theme.

The transaction was crafted outside the purview of public domain, as the companies involved are private entities. Not to mention, the valuations were not known too.

What was out in the open is Vertical Theme holding 29% in AFG and Duxton, the junior shareholder in the joint venture, calling the shots in the day-to-day operations of AFG.

Although there had been previous attempts by Temasek to acquire a bigger stake in AFG, it could not materialise. The reason is believed to be due to a Bank Negara ruling that does not allow an institution to control more than one bank.

On this score, Temasek is already the single largest shareholder in Standard Chartered, which has a sizeable presence amongst foreign banks in Malaysia. Hence, its attempt to increase its stake in AFG was not possible.

The constraints faced by Temasek also made it difficult for Langkah Bahagia to monetise its stake. That was the situation until April 8 when the old shareholders of Langkah Bahagia got their long-sought-after exit and Temasek found comfort in new partners at Vertical Theme.

The relationship between Daim and Temasek goes back a long way. Apart from Temasek having a stake in AFG, it also ventured into Bank Internasional Indonesia (BII) together with Daim’s International Commercial Bank (ICB).

Daim’s ICB group of banks was largely based in Africa and was listed on London’s Alternative Investment Market in 2007. It was delisted in 2012.

PT Bank ICB Bumiputera, another bank in Indonesia that used to be under the ICB group, is said to have been divested more than a year ago.

Among all the banks linked to Daim, BII and AFG were the better-known ones. BII was taken over by Malayan Banking Bhd a few years ago, while AFG was the last one standing.

The change of ownership of Langkah Bahagia marks the end of the era of Daim and his interest in banking in Malaysia.

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