Malaysia's RHB buys Indonesia's Bank Mestika

Malaysia's RHB Capital will buy 80% of Indonesia's Bank Mestika Dharma for Rp3.118 trillion ($329 million). RHB will fund the deal through a M$1.3 billion ($384 million) rights issue.

RHB Capital is paying 3.5 times Bank Mestika's book value of Rp1.114 trillion as per December 31, 2008, and 23 times the Indonesian bank's earnings for calendar 2008.

RHB Capital is the holding company of RHB banking group, the fourth-largest financial services provider in Malaysia. RHB Bank is the largest entity in the group. In 2008 RHB Bank earned M$1.3 billion before tax, registering growth of 45% over the previous financial year.

Malaysia's Employees Provident Fund (EPF) is the largest shareholder in RHB Capital with a 57% stake. Following a sell-down by the EPF last year, Abu Dhabi Commercial Bank (ADCB) owns 25%.

RHB Capital was advised on the Bank Mestika acquisition by RHB investment bank and Rothschild. It will be advised by RHB investment bank and CIMB on the rights issue.

RHB said in a Bursa Malaysia filing yesterday that the price took into consideration "the strategic importance of Indonesia as a key market in RHB Capital's regional expansion strategy, in view of its attractive macroeconomic factors, strong cultural similarities and economic inter-connections with Malaysia, as well as its close geographical proximity to Malaysia".

Bank Mestika is headquartered in Medan in Indonesia and has been operating since 1956. It obtained a foreign exchange banking license in 1995, although it has not yet started foreign currency banking. Bank Mestika has a network of 50 branches across Indonesia. It offers trade finance, home loans, automobile loans and commercial loans. On the corporate side, it serves primarily small and medium-sized enterprises.

RHB has also negotiated an option to buy another 9% of Bank Mestika for Rp351 billion plus a performance-related payment of up to 15% per annum, compounded annually but adjusted for dividends earned by RHB. RHB can exercise the option any time between three and seven years from the closing of the acquisition. The acquisition is expected to be completed by the second quarter of 2010.

RHB has not yet decided at what price it will offer existing shareholders rights shares. RHB indicated that the price will be at a discount of between 20% and 30% to the theoretical ex-rights price (Terp), based on the five-day volume-weighted average price of RHB's shares just before the board meeting to fix the rights price. The rights issue will be launched only if the acquisition proceeds according to plan. The rights shares being offered are renounceable, thus could be a way for ADCB to further consolidate its stake in RHB Capital. ADCB has said it is keen to enhance its presence in new markets.

RHB's franchise currently spans Malaysia, Singapore, Brunei, Thailand and Vietnam. It said the acquisition is in line with its strategy to become a top three financial services provider in Asean by 2020. RHB Bank's managing director said earlier this year that the bank is keen to expand in the region through mergers and acquisitions and has shareholders willing to support such expansion.

RHB is following in the footsteps of its larger Malaysian rival Malayan Banking (Maybank) in making an acquisition in Indonesia. Last year Maybank bought a controlling interest in Bank Internasional Indonesia (BII) for M$4.26 billion.