Thanachart Bank buys Siam City Bank

Thailand's banking regulator has sold its controlling interest in Siam City Bank to Thanachart Bank for Bt32 billion ($978 million).

Thailand's Financial Institutions Development Fund (FIDF), the arm of Thailand's central bank that bails out distressed financial institutions, owned a 47.58% stake in Siam City Bank (SCIB). The FIDF invested in SCIB in 1998 following the Asian financial crisis and subsequently merged SCIB with Bangkok Metropolitan Bank.

The FIDF worked with UBS Securities and local firm Tisco Securities to monetise its stake in SCIB. Expressions of interest were sought from qualified investors and five bidders comprising Thanachart Bank, popularly known as TBank, and four international parties submitted bids. TBank won the auction both on price and other terms, said sources. Media reported that HSBC was in the fray, as well as other international players keen to capitalise on the opportunity to expand significantly through an acquisition in Thailand's banking market.

The Bt32 billion offer by TBank, Thailand's seventh-largest bank by assets, translates into Bt32.50 per share. This represents an 8.3% premium to SCIB's closing share price on the Stock Exchange of Thailand (SET) on February 1, the day bids were received by the FIDF, and a 31% premium to the price at which SCIB closed on the SET on October 22 last year, the day before the FDIF announced the transaction. It also represents 1.6 times SCIB's book value on December 31, 2009 and a price-to-earnings multiple of 16.5 times, based on 2009 earnings.

The price being paid by TBank implies an enterprise value for SCIB of $2 billion. TBank will now make a mandatory general offer to SCIB's remaining shareholders at the same price of Bt32.50 per share. It is expected that SCIB will subsequently be delisted.

The combination of TBank and SCIB will create the fifth-largest bank in Thailand, measured in terms of assets and gross loans, with over 800 branches and 2,100 ATMs. The deal is complementary for both banks, some analysts commented, as TBank is strong in hire purchase and car loans while SCIB is mostly present in corporate and housing loans. Some specialists said the two banks will merge in the future, which will enable them to best integrate TBank's retail banking and SCIB's corporate banking strengths.

In 2007, Canadian lender The Bank of Nova Scotia agreed to buy a 24.99% stake in TBank from Thanachart Capital, which then owned almost the entire capital of TBank. Bank of Nova Scotia also negotiated the right to increase its stake to 49% subject to the necessary regulatory approvals, which have since been received. The Canadian bank is expected to participate in the equity capital raising to fund the deal to maintain its 49% stake.