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US-Based Fund Teams Up With Azman’s AMMB?

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PETALING JAYA: Several foreign funds including US-based equity fund TPG Newsbridge are courting AMMB Holdings Bhd chairman Tan Sri Azman Hashim with the view of buying up Australia and New Zealand Banking Group Ltd’s (ANZ) block of shares in the Malaysian banking group, according to sources.

The funds, especially TPG, want exposure to the local banking sector with a possibility of going regional.

As for Azman, he is committed to stay with AMMB for the longer term and would like to have a partner he is comfortable with in the bank.

“Azman wants to ensure that ANZ’s block of shares in AMMB goes to a group with whom he can work, and not just anybody else,” a source said.

“In this instance, TPG appears to be an ideal candidate, as Azman is probably more familiar with the fund that had previously participated in a bidding war with ANZ for the stake in AMMB,” the source told StarBiz.

News about ANZ wanting to exit AMMB has been circulating the market for a while now, as the Melbourne-based banking group has been under increasing pressure from its shareholders back home to improve returns from its underperforming Asian assets.

ANZ is at present the single largest shareholder in AMMB, with a 23.8% stake in the sixth-largest banking group in Malaysia.

Azman, on the other hand, has an indirect stake of 12.97% in AMMB through his investment holding company AmCorp Group Bhd.

AMMB’s relatively small earnings contribution of less than 3% to ANZ’s group earnings base and Basel 3 punitive capital requirements and deductions on minority shareholdings are said to be the factors underpinning ANZ’s potential stake disposal in the bank.

Amid an increasingly challenging banking landscape both from a regulatory and competitive standpoint, AMMB’s return on equity (ROE) has been on a declining trend.

The group’s ROE is expected to reduce to around 10% for the financial year ended March 31, 2016, from a high of 14% in 2013. This compares with the industry ROE average of 12.8%.

But for its plan to exit AMMB, ANZ had met with a stumbling block, due primarily to pricing.

The last company to have shown interest in ANZ’s block of shares in AMMB was reportedly Bank of China (M) Bhd last year.

ANZ emerged as the biggest shareholder in AMMB in 2006 after winning a bidding war against TPG Newsbridge, which had then also expressed interest in AMMB.

ANZ paid an average of RM3.63 a share, or RM2.58bil, for its stake in AMMB over two tranches. This translated into a price-to-book (P/B) of 1.96 times for AMMB then, which was in line with the average valuation of 1.91 times P/B of banking mergers at that time.

After ANZ’s entry into AMMB and Hong Kong’s Primus Pacific Partners into EON Capital Bhd in 2007, the Malaysian banking scene has not seen a foreign strategic investment.

Foreign ownership of commercial banks in Malaysia is currently capped at 30%.

According to an industry observer, TPG could be betting on the upcoming change of guard at Bank Negara for further liberalisation of the Malaysian banking sector.

“There is an expectation that the foreign shareholding limit will be raised, as foreign participation is probably needed to induce the revival of merger and acquisition activities in the local banking scene,” the analyst said.

Separately, while there had been previous reports about Azman looking to pare down his stake in AMMB, certain quarters now said the 77-year-old banker-tycoon might have changed his mind, and hence would not dilute his interest in the bank in which he once controlled after all.

In fact, Azman has reportedly been building up his cash position to prepare for a potential fund-raising activity in AMMB, which is one of the few that has yet to undertake any exercise to beef up its capital base. To ensure that his stake in AMMB would not be diluted from a possible rights issue exercise, Azman would need to fork out cash to subscribe to the rights issue in full.

Sources had earlier told StarBizWeek that Azman was looking to sell his indirect stake in ECM Libra Financial Group in a deal that could earn him around RM27.45mil.

Azman, together with Public Bank Bhd’s Tan Sri Teh Hong Piow and Hong Leong Financial Group Bhd’s Tan Sri Quek Leng Chan, have been exempted from the 10% shareholding limit as required under the Financial Services Act 2013 (FSA), as per the Banking and Financial Institution Act 1989 (Bafia). Bank Negara said exemptions were granted to the trio, as their personal stakes in the respective banks were acquired even before Bafia was implemented in 1989.

AMMB’s shares fell three sen to close at RM4.61 last Friday.

AMMB posted a net profit of RM300.15mil in the third quarter ended Dec 31, 2015, on the back of RM2.116bil in revenue hampered by weaker business sentiment and margin compression.

The banking group said earnings were lower by 27.9% from the RM416.65mil of a year ago, while revenue dipped 0.6% from RM2.129bil.

Earnings per share was at 9.99 sen compared with 13.86 sen.

For the nine months, its earnings were down 26.9% to RM1.02bil from RM1.39bil in the previous corresponding period.

Revenue was at RM6.31bil compared with RM6.92bil.

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