China Construction Bank

Malaysian lender wins Asia Commercial Bank

PUBLISHED : Thursday, 16 February, 2006, 12:00am
UPDATED : Thursday, 16 February, 2006, 12:00am

Public Bank beats CCB and 10 other rivals but analysts believe the $4.5b bid is expensive

Malaysia's third-largest bank Public Bank has won a bidding war to secure Asia Commercial Bank for $4.5 billion in the second-most expensive banking takeover in the history of Hong Kong.

The Hong Kong-listed arm of Public Bank, JCG Holdings, plans to pay in cash for the banking unit of Asia Financial Holdings.

The offer represents 2.5 times the value of Asia Commercial.

The transaction is subject to shareholders' approval.

While analysts consider the deal expensive, Public Bank chairman Teh Hong Piow said it would be the bank's springboard into Greater China.

'We are very excited by this opportunity to expand the Public Bank Group's franchise into Hong Kong and Greater China,' Mr Teh said.

Sources familiar with the deal told the South China Morning Post yesterday that JCG had beaten off other strong bids, including one from the mainland's third-largest lender China Construction Bank, offering the best price among the 12 bids submitted December last year.

JCG looks to finance the transaction through a senior bridging loan in the near term that will subsequently be refinanced by a combination of equity capital and medium-term debt financing. The market expects a rights issue.

Asia Financial president Bernard Charnwut Chan told the Post that the money from the sale would be used to buy insurance and financial companies and expand into the health-care business.

'We would like to expand into health-care related business with our family-owned Bumrungrad Hospital, which is the largest hospital group in Southeast Asia,' Mr Chan said.

He said Asia Financial planned to keep a close relationship with Public Finance, selling its insurance products through its network of bank branches.

Analysts believe Public Bank paid too much for the acquisition at 2.5 times book value, which comes second only to DBS Bank's takeover of Dao Heng Bank in 2001 at 3.18 times book value. The most recent bank sale involved Taiwan's Fubon Financial Holding, which bought International Bank of Asia in September 2003 at 1.15 times book value, or $4.31 billion.

Sources said Public Bank, however, would benefit from the deal as Asia Commercial had a strong small to medium-sized client base and had few bad-debt records. 'Most importantly, there are not many small banks on sale on Hong Kong market,' one source said.

After the takeover, JCG will have an additional $14.7 billion in assets, a banking licence and a total of 52 branches in Hong Kong including Asia Commercial's 12 branches and 360 staff.

Asia Commercial also has a branch in Shenzhen and two representative offices, in Shanghai and Shenyang.

Public Bank has been operating a banking business in Hong Kong for more than 10 years through 64 per cent-owned JCG, which offers personal, taxi and minibus financing.

JCG executive director and chief executive Tan Yoke Kong said the takeover 'is as much about revenue growth as it is about cost savings'.

Shares of Asia Financial and JCG were both suspended from trading yesterday pending announcement of the takeover.