Finance Asia: The Hongkong and Shanghai Banking Corporation, through its wholly owned subsidiary HSBC Asia Pacific Holdings (UK), will acquire 88.9% of PT Bank Ekonomi Raharja for $607.5 million in cash. HSBC will fund the deal through its own resources.
Bank Ekonomi was established in 1989 and is listed on the Indonesia Stock Exchange. It had 86 outlets across Indonesia providing retail banking services and assets of around $1.8 billion as at the end of September 2008. Bank Ekonomi also provides commercial banking services.
Based on its share price on October 17, Bank Ekonomi had a market capitalisation of Rp4.62 trillion ($482 million). HSBC is paying a 42% premium to Bank Ekonomi’s market cap.
Bank Ekonomi’s profit before tax was Rp231 billion for the nine months ended September 30, meaning HSBC is paying 21 times annualised 2008 earnings before tax.
HSBC will acquire a 38.8% stake from Lumbung Artakencana, 38.6% from Alas Pusaka and 11.4% from individual shareholders of Bank Ekonomi. Under Indonesian law, it will also be required to make a mandatory tender offer for the remaining 11.1% of minority shares outstanding. HSBC is acquiring all the shares at a price of Rp2,452 per share.
“This acquisition underlines HSBC’s stated strategy to invest in fast-growing emerging markets,” says Sandy Flockhart, CEO of HSBC Asia-Pacific in a written statement. “With almost 125 years presence in the country we recognise the enormous growth opportunities ahead for Indonesia, with a GDP growth over 5.5% in each of the past three years, rich natural resources, thriving commodities trade and foreign direct investment inflows, favourable demographics and the world’s fourth largest population of 235 million people.”
Bank Ekonomi completed an initial public offering in January at a price of Rp1,080 per share. However, in August, media reported that the controlling shareholders of Bank Ekonomi had appointed BNP Paribas to assist them in finding a strategic buyer. Media has also reported that Commonwealth Bank of Australia was in the fray for Bank Ekonomi.
HSBC has operated in Indonesia since 1884 and currently provides personal financial and corporate banking services through 105 outlets spread across 10 major cities. HSBC earned a profit before tax of $104 million in Indonesia in calendar 2007 and $66 million in the first six months of 2008.
HSBC said the deal will enhance its commercial banking business in Indonesia and double its retail network to over 190 outlets in 24 cities across the country.
The deal is subject to regulatory approval.
On September 18, HSBC terminated its agreement to acquire US private equity firm Lone Star’s 51% stake in Korea Exchange Bank for $6.3 billion. The deal had been unable to secure the relevant regulatory approvals over the course of 12 months. At the time, HSBC cited “current asset values in world financial markets” as a compelling reason why it had decided to abandon its pursuit of KEB, leading analysts to speculate the bank could be trying to free up management time and resources to pursue other acquisitions which may become available at a cheaper price. Shareholders cheered the strategy, pushing HSBC’s shares 5.4% higher on the London Stock Exchange to close at £8.40 ($14.40) yesterday.
Bank Ekonomi's share price rallied in afternoon trading yesterday after the deal was announced, finishing the session 9.8% higher at Rp1,900.
Comment: It is interesting to note that Bank Ekonomi has a Shareholders' Funds of Rp1.121 Trillion (RM392 million), which means that HSBC is effectively buying Bank Ekonomi at a Price to Book multiple of 6.1 times! This is much higher than the Price to Book multiple of 4.6 times that Maybank will be paying to acquire Bank Internasional Indonesia ('BII') [before subsequent discounts granted by the sellers]. The different in size may account for the higher multiple demanded by the sellers in the Bank Ekonomi deal as compared to the BII deal, as part of the purchase price must include the price of the banking license itself. Nevertheless, one may wonder why does HSBC want to pay such a high premium for this bank since it already has a foothold in Indonesia?
Here we have to be fair to Maybank. For those of us who criticised Maybank for over-paying, HSBC would be doing even worse. The trouble is that we tend to whack our local buggers more readily, and would give big foreign players more benefit of the doubt in almost any transactions. Let's be honest here. HSBC paying 6.1x ... we were screaming of collusion and calling for the board to be sacked for Maybank buying at 4.6x...
There can only be so many possiblities: both Maybank and HSBC overpaid ..... Maybank may have been smarter to buy first as HSBC also bidded for BNI against Maybank ... maybe now HSBC had to overpay even more for not being aggressive in their bidding for BNI... Thanks to HSBC's move, Maybank executives had their prayers answered... they now have something to defend their acquisition with. Even if both Maybank and HSBC overpaid, Maybank will say they overpaid much less. Time for those of us who critiqued to again re-look into the "intrinsic value" of Indonesian banking.
Fair is fair, maybe I have pre-judged Maybank's strategy and misjudged its "valuation techniques". It does not mean I agree with HSBC's strategy, but if an old woman is running very fast, there's bound to be something fishy.
p/s photos: Cherie Ying Choi Yee
No comments:
Post a Comment