ING will make the acquisition by participating in an earlier announced recapitalisation exercise of TMB that will also involve other existing shareholders of the Thai bank. However, ING has agreed to pay Bt1.60 per share for its stake - a slight premium to TMBÆs Bt1.58 closing price in Bangkok on Wednesday - compared with the Bt1.40 per share that the other shareholders will pay, according to separate statements by both banks yesterday.
This means that the total recapitalisation amount will increase to Bt37.623 billion ($1.2 billion) from the original plan to raise Bt35 billion. TMB needs new capital to make up for shrinking earnings and loan growth and after reporting a loss in the second quarter due to large-scale provisions for bad loans.
This doesnÆt worry ING, however, who said the acquisition of ThailandÆs fifth largest bank by total assets will allow it to extend its footprint in the fast growing Asian market.
ôWe had a long due diligence exercise to figure out what is inside the bank and we see quite a bit of potential. Certainly with our capacity in managing an NPL book as we have shown both it Poland and in ING Vysya Bank (in India) we are very confident that we can improve the situation,ö says Philippe Damas, INGÆs head of retail banking for Asia-Pacific.
ôWe also feel that we can help them improve their retail and SME banking. They have a good imprint with a good number of branches and ATMs, but it isnÆt exploited to the best.ö
Eli Leenaars, an executive board member who is responsible for INGÆs global retail banking activities, noted in a statement that the partnership will leverage INGÆs expertise in retail banking and TMBÆs superior distribution platform, thereby greatly enhancing the quality of service and breadth of financial products offered to TMBÆs customers.
Specifically, the bank feels that its experience in running vast branch networks in India, China and Poland gives it a competitive advantage. In addition, INGÆs demonstrated ability to execute cost cutting programs in countries like Holland and Belgium will also come in handy and will be put to use at TMB, Damas says.
Other shareholders showed their approval for the pending acquisition û and perhaps relief that the much needed cash injection will finally be forthcoming û by pushing TMBÆs share price 7.6% higher in an otherwise weak market. The stock closed at Tb1.70.
According to the ING release, TMB has total assets of approximately Eur14 billion. It has a large retail deposit base and focuses specifically on lending to small and medium enterprises (SME) and the corporate sector. Founded in 1957, it has built a network of 472 branches across Thailand and a customer base of about 5 million. It posted a consolidated loss of Bt2.54 billion ($81 million) in three months to September, compared with a net profit of Bt1.29 billion a year earlier.
The decision by ING to raise its per-share offering price was made after TMB received an unsolicited offer by a group of financial institutions to participate in the recapitalisation plan on Monday. TMB said it gave ôcareful considerationö to the competing bid but decided that INGÆs proposal would be more beneficial to the bank.
ING will receive about 13.1 billion TMB shares of the 25 billion shares that will be issued as part of the re-capitalisation exercise, which will give the Dutch bank a 25.1% stake in TMB. It will also acquire a further 4.9% of the company in the form of non-voting shares, giving it a combined 30% shareholding.
The acquisition is subject to approvals from TMBÆs shareholders and various regulators. It is also conditional upon ING receiving a waiver from having to make a general offer for the rest of TMBÆs outstanding shares. Assuming these are forthcoming, the transaction is expected to close before year end.
The Thai Ministry of Finance is expected to participate in the recapitalisation, but wonÆt take up its full entitlement of shares. As a result, its current 31.2% stake is expected to be diluted to 26.1%, leaving ING as the single largest shareholder of TMB.
This is likely to have been a key issue after SingaporeÆs DBS Bank said in mid-September that it would not be participating in TMBÆs proposed recapitalisation plan because of issues relating to management control. DBS had earlier indicated that it would be interested in playing a greater role in improving TMBÆs performance, but after ôseveral months of extensive discussionsö with the Ministry of Finance as well as the management and board of directors at TMB, it felt it still hadnÆt received ôadequate assuranceö that it would have sufficient management control to make the necessary operational changes.
DBS currently holds 16.1% of TMB, and even though this will fall now that it wonÆt be buying any shares in the capital raising exercise, the Singapore bank said it is committed to remain a significant shareholder of TMB.
Interestingly, the acquisition will see ING cross paths again with AustraliaÆs Macquarie Bank who has a securities and investment banking joint venture with TMBÆs securities arm. ING sold its Asian equities operations to Macquarie in 2005.
ING believes there are significant growth opportunities in Asia and has made several strategic investments in various countries in recent years. On the retail banking side it holds a 16.07% stake in Bank of Beijing and 44% of ING Vysya Bank in India.
Globally, ING offers banking, insurance and asset management services to more than 75 million private, corporate and institutional clients in more than 50 countries.