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Exploring new horizons? Abu Dhabi’s Aabar considers write-down of $1.9 bln rhb deal

Exploring new horizons? Abu Dhabi’s Aabar considers write-down of $1.9 bln rhb deal

The write-off makes long-term sense for the fund says experts; Aabar would then likely end up with a stake in a bigger bank with a stronger valuation.

August 16, 2011 11:22 by



Abu Dhabi fund Aabar is considering a write-down of its $1.9 billion 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 $7.2 billion, 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 $1.91 billion 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 $450 million.

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

ALL ABOUT VALUATION

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 told Reuters. “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 write-down 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 told Reuters that the bank would only relook at RHB at a price below 8.60 ringgit per share,



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