Primus buys 20% of Eon Capital

Primus is either second time lucky or accepting a consolation prize in its bid for a piece of the Malaysian banking sector.
Hong Kong-based private equity firm Primus Pacific Partners has agreed to buy 20.2% of Malaysian bank Eon Capital for M$1.34 billion ($415 million) in order to take advantage of the long-term growth prospects and high margins available in Malaysia's banking industry.

Primus will pay Hicom, a subsidiary of Malaysian carmaker DRB-Hicom, M$9.55 for each Eon share, it said in a statement. The price equals a 58% premium to EonÆs closing price of M$6.05 on January 31, the last traded price before the announcement.

One Kuala Lumpur-based banking analyst argues that Primus is ôover-paying for an unimpressive franchiseö.

But, Jeroen Nieuwkoop, managing director of Primus, is excited by its potential. He reckons this is ôthe last opportunity to become a substantial shareholder in any bank in Malaysiaö, but added that Primus has no intention of making a general offer for Eon as its stake is less than the takeover threshold of 33%. There are nine domestic banks operating in Malaysia, which is AsiaÆs largest Islamic finance market. Eon is the third smallest by asset value.

Nieuwkoop says Primus was attracted by the margins offered by three sectors that foreign banks, which are slowly entering the Malaysian market, would struggle to build up organically. ôConsumer, SME (small- and medium-size enterprises) and Islamic banking have huge potential for expansion,ö he says, adding that Malaysia, with about nine million account holders, is significantly under-banked compared to Taiwan which has had as many as 55 million at its peak.

The central bank has approved the Primus transaction and the deal is expected to be completed by the end of March, subject to approval by the Foreign Investment Committee, and shareholders of both Hicom and DRB-Hicom. ABN AMRO Holdings is advising Eon, while Primus is advised by Lehman Brothers.

Nieuwkoop says Primus, set up in 2005, is a long-term investor and will look to inject new capital into the bank ôto help further build and develop its franchiseö. Bank consolidation has been a process underway in Malaysia since the financial crisis of the late 1990s and has probably not ended. Malaysia's 54 banks merged into 10 in 2000 in a drive led by the central bank to strengthen the industry. The figure fell to nine in 2006 after Bumiputra-Commerce Holdings bought Southern Bank.

In July last year, Datuk Nazir Razak, chief executive of CIMB Group, the countryÆs second largest banking group, predicted that the number of Malaysian banks may fall to six ôin the near termö. At a banking conference on July 19, he called for the regulator to quicken mergers within the industry, otherwise ôthe local players may not be able to withstand the forces of liberalisationö. Not only is Razak a prominent and influential financier, he has pedigree connections. His father was MalaysiaÆs second prime minister and his brother is currently deputy prime minister and finance minister.

Investment funds, especially from the Middle East, have been chasing Malaysian banks in the past year, attracted by rising domestic spending and demand for credit. Primus was one of those suitors, having tried but failed to buy a stake in Rashid Hussain (RHB), the countryÆs fourth-biggest lender which Eon itself was also interested in forming a merger with.

One sceptical Singapore-based banking analyst commented that, ôby taking a piece of Eon, Primus was clearly opting for a considerably inferior consolation prize after its disappointment at failing to get a part of RHBö.

Eon's bank is 45-years old, has 133 branches and boasts 10% of the country's auto-finance market and 5% of the credit-card industry. It had $12 billion of assets as of September 2007.

Shares of Eon gained 2.5% to M$6.20, following the February 4 announcement, valuing the company at M$4.3 billion. At 1.4 times book value, it trades at a discount to the average of over 2 times for Malaysian banks.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media