ADCB buys RHB stake, see profits doubling

PROFIT FORECAST: ADCB has bought 25% of RHB, saying the lender was poised for rapid growth. (ITP images)

Abu Dhabi Commercial Bank (ADCB) bought 25% of Malaysia's fourth-largest lender, RHB Capital, for $1.23 billion on Thursday and said its new asset was poised for rapid earnings growth.

The UAE bank, the third-largest in the emirate of Abu Dhabi by market value, first revealed in March it was buying the stake, another sign that Gulf Arab lenders were moving increasingly offshore as competition heats up at home.

But the final price of 7.20 ringgit, announced on Thursday, is a hefty 36% premium to the current share price and 3.1 times book value steep compared with the biggest two local banks, Malayan Banking and Bumiputra-Commerce.

RHB Capital, which was among brokers' least favourite banking stock picks when the state pension fund bought it out in March 2007, fetched 5.25 ringgit per share at 0347 GMT, up 1%.

ADCB Chairman Saeed Al-Hajeri sought to justify the price, telling reporters ahead of the deal-signing ceremony that RHB's profits could easily double in three years.

"The plan is very attractive... very aggressive, very possible. My personal belief is that they will reach that easily," he said in Malaysia's administrative capital, Putrajaya.

The Employees Provident Fund took the extraordinary move to buy out RHB for $3.68 billion after a bidding war for the business. The fund, already a major shareholder, was convinced it could make more money by buying the bank and on-selling strategic stakes than by simply selling out to bidders at the outset.

The fund's chief executive, Azlan Zainol, who is also chairman of RHB Capital's core unit RHB Bank, said the alliance with ADCB would help drive the Malaysian bank's business links with the Gulf states.

Zainol also talked up the prospects of using the relationship to grow Islamic banking profits for RHB and the Abu Dhabi bank.

Malaysia is the world's most developed Islamic banking market and is a regional hub for Asian Islamic finance. RHB Capital has a separate Islamic banking unit, RHB Islamic.

"RHB Capital and Abu Dhabi Commercial Bank will now be uniquely positioned to leverage on growing business flows between GCC and Asean and strengthen both banks' strategic position in the global Islamic banking market," Azlan said in a statement. (Reuters)

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