ANZ's divestment may mean smoother roads for AmBank-RHB Bank merger

KUALA LUMPUR: With reports that Melbourne-based Australian New Zealand Banking Group (ANZ) is ready to divest its 24 per cent stake in AMMB Holdings Bhd (AmBank) and with KWAP the likely acquirer, analysts observe that a major stumbling block in the AmBank-RHB Bank Bhd (RHB Bank) merger is removed.

According to the the research arm of Kenanga Investment Bank Bhd (Kenanga Research), last month both AmBank and RHB Bank announced the approvals from BNM for both parties to commence negotiations for a potential merger with RHB Bank the likely acquirer with the exercise likely to be an all shares merger.

“From our understanding, the acquisition price tag targeted or share swap will be done based on one-fold price to book value (PBV) for AmBank while the value for RHB Bank is yet to be ascertained,” it said.

Kenanga Research noted that as with other potential mergers, potential banking mergers have always been fraught with major issues namely pricing and shareholders' approval.

The research arm further noted that while there seems to be no issue from RHB Bank as the group would need a 50 per cent plus one approval for the acquisition, there are speculations that AmBank's ANZ shareholders which hold a 23.8 per cent stake in AmBank might be a stumbling block in the proposal as the pricing might not be palatable to them.

“From AmBank's perspective, it would require a 75 per cent vote for the proposal to be acceptable,” the research arm said.

“It has been extensively reported that ANZ is open to dispose its entire 23.8 per cent stake in AmBank following pressure from shareholders back home to improve returns from their Asian assets. However, so far, there has been little or no interest from local banks to take up the entire block, with pricing said to be a key stumbling block.”

Kenanga Research highlighted that from the recent first half of 2017 (1H17) financial statements ending March 31, 2017, the value of ANZ's holding in AmBank was maintained at A$1.198 billion with no impairments made despite the market value being less than its carrying value, indicating that ANZ is comfortable with disposal of its AmBank's stake at approximately one-fold P/BV.

The research arm pointed out that at the carrying value of A$1.198 billion, this implieD a price of A$1.67 per share or RM5.53 per share (based on the Australian dollar-ringgit average of 3.31 in 1H17) or specifically at 1.04-fold PBV, closer to the proposed acquisition value and ANZ's carrying value of its stake in AmBank.

“Based on a US dollar-Australian dollar average in 1H17, US$900 million will fetch A$1.188 billion justifying the proposed sale at approximately one-fold PBV,” it said.

Kenanga Research also highlighted that another stumbling block in the disposal of ANZ's block of shares is its large stake of 23.8 per cent in AmBank.

From the research arm's estimates, a post-acquisition shareholding structure will see the Employees Provident Fund (EPF) poised to become the largest shareholder with a 29.5 per cent stake, followed by Aabar at 11.9 per cent, ANZ at 10.5 per cent and OSK Holdings Bhd (OSK) at 5.6 per cent.

Theresearcharmnotedthatpostacquisition, ANZ's block of shares will be reduced to approximately 10 per cent with the Retirement Fund Incorporated (KWAP) likely to be the acquirer judging from media reports that it is looking favourably to purchase at one-fold PBV and up to 10 per cent of the merged entity.

All in, the recent news of potential acquisition of AmBank at one-fold PB has revived Kenanga Research's interest in this stock.