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Tue 16 Aug 2011 07:34 AM

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Aabar mulls writedown of $1.9bn RHB deal

Abu Dhabi fund bought 25% stake from local lender ADCB, but has yet to pay

Aabar mulls writedown of $1.9bn RHB deal
Mohamed Badawy Al-Husseiny, chief executive of Abu Dhabi fund Aabar

Abu Dhabi fund Aabar is considering a writedown of its
$1.9bn purchase of a 25-percent stake in Malaysia's RHB Capital , a source
said, after the deal's rich pricing helped scupper long-awaited consolidation
in Malaysia's banking sector.

Aabar agreed to pay 10.80 ringgit per share in June for Abu
Dhabi Commercial Bank's quarter stake in RHB, valuing Malaysia's fifth largest
lender at around $7.2bn, or 2.25 times its book value.

Malaysia's two largest banks, Maybank and CIMB Group , which
had been planning a full takeover of RHB, subsequently pulled out of the deal
citing the high price paid by Aabar.

Aabar, the largest single stake owner in both Daimler and
commodities giant Glencore, has internally discussed valuing the deal lower to
encourage Maybank and CIMB to come back with an offer for RHB, a banking source
with direct knowledge of the matter said.

The fund would then likely end up with a stake in a bigger
bank with a stronger valuation.

"As long-term investors, it makes sense for Aabar to be
part of a larger entity which has a higher valuation than RHB, plus a lowered
deal will also make a lot of people in Malaysia happy," the source said,
declining to be identified as talks are not public.

ADCB would still get the full $1.91bn payment and Aabar
would likely book a paper loss for the investment, the source said. Aabar may
revalue the asset at 1.7-1.8 times book value, the source said, meaning Aabar
would have to write down the value of its holding by as much as 24 percent, or

Aabar did not respond to repeated requests for comment via
phone and email, while ADCB declined to comment.

A home-grown takeover of RHB would have been a big step for
Malaysia's banking sector where an earlier round of mergers in 1998 cut the
number of lenders to 10 from 54, and could spark further deals in the region.

"Valuations are reasonable at 1.7-1.8 times book,"
a Malaysian analyst said. "If you look at the other smaller banks, say
Alliance Financial, they are trading between 1.5 to 1.7 times book."

The analyst, who cannot be identified as he was not
authorised to speak to the media, said a writedown by Aabar would send a clear
invitation to Maybank and CIMB to come back to the table after its earlier
pricing gaffe.

"ADCB and Aabar tried to force Maybank and CIMB to fork
out the money with the 10.80 ringgit bid, but they didn't realise that they
would walk away," he said.

A CIMB banker who was involved in the earlier negotiations
of the deal said that the bank would only relook at RHB at a price below 8.60
ringgit per share, which translates to just above 1.8 times book.

A Maybank official involved in the deal was skeptical that
Aabar would be willing to take such a hit. At 10.80 ringgit a share, Maybank
was simply "not interested", the official told Reuters.

Investors have also been skeptical about Aabar's valuation
of RHB.

RHB, which declined to comment on the possible revaluation,
has said it is open to merger opportunities at the right price.

The Central Bank, Bank Negara Malaysia, has said in the past
that it wanted RHB's main shareholder, the Employees Provident Fund (EPF), to
pare down its stake.

EPF presently holds about a 45 percent stake in RHB.
Malaysian authorities are encouraging consolidation to create bigger banks that
can grab regional market share.

The remaining 30 percent is mostly held by local funds.

Aabar has yet to make payment for the stake purchase and has
missed an internal July 31 deadline, three sources with knowledge of the matter
said, further fuelling speculation that Aabar is considering a write-down in
its books.

The fund rejected a financing package presented by a
consortium of international banks as being too expensive and is likely to turn
to its parent International Petroleum Investment Corp (IPIC) for a loan to fund
the payment, said the sources, who were not authorised to talk publicly about
the matter.

IPIC was not available for comment.

Aabar, which was taken private by IPIC last year, now needs
to make the payment before August 31 to complete the deal, one Gulf-based
source said. It will pay interest of 6.5 percent per annum on the delayed
payment, the source added.

The deal between the two state-owned firms is still expected
to be completed as the oil-rich emirate will not face difficulty finding other
funding avenues, the sources have said.

ADCB booked a $357m gain from the sale when it reported its
second-quarter results earlier in the month.

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