For the second time in a week, a state-backed Malaysian corporation looks to be making significant inroads in the Singapore market, with Southern Bank looking to expand its regional business.
Whereas the telecommunications sector was the focus of last week's acquisition of Singapore's MobileOne by Telekom Malaysia International (TMI) and Khazanah, a financial services transaction is likely to become the latest deal involving the neighbouring nations.
Southern Bank, Malaysia's ninth largest lender, appears to have beaten out stronger opposition, emerging as the likely acquirer of Singapore's Asia General Holdings (AGH). In the process, one of Malaysia's smallest banks is clearly sending the message that it does not plan to become the target of acquisition for the foreseeable future.
Asia General Holdings is the holding company for The Asia Insurance Co. and the Asia Life Assurance Society and one of the Lion City's oldest underwriters. Advised by NTan Corporate Advisory, the controlling Tan family is understood to have put the stake up due to the immense competition in Singapore and its resulting market loss in the city-state. The Singapore-based holding company wholly owns the general insurance arm, while also controlling a 75% stake of the life insurance operation.
Subject to approvals by the Monetary Authority of Singapore (MAS), Bank Negara Malaysia and other authorities, Southern Bank will likely enter into general and life insurance in both Singapore and Malaysia, where Asia General Holdings has a footprint. The company also has smaller operations in Brunei and China, including an investment in Minsheng Life Insurance Company.
The proposed 40% acquisition by Southern Bank will come in the form of a S$918.8 million ($550 million) cash payment. This offer roughly equates to a consideration of S$12.25 per share. Southern Bank has yet to unveil how it plans to finance the acquisition of AGH, which has an estimated asset base of $1.71 billion.
In offering to buy the insurer at $550.3 million, Malaysia's number nine has valued Asia General Holdings at 1.4 times its net tangible assets at fair value.
Upon coming to light, investors reacted favourably to the proposed transaction, sending Southern Bank's share prices upwards by 4.7% at the close of Thursday (18/8) trading. In addition, a total of 4.8 million Southern Bank shares were traded on 18 August, representing 13 times the number traded earlier.
The Southern Bank stock price then marginally dropped on Friday over concerns of a potential drain to its capital upon the purchase completion and on profit taking. However, analysts expect the price to trade upwards of RM3.60 should the transaction be completed. At Monday's close, Southern Bank was trading at RM3.56.
Generally, analysts reacted positively to the acquisition news, with several pointing out that the price Southern Bank will pay is cheap relative to the insurer and that earnings from Asia General Holdings would substantially impact its bottom line. Others pointed to the strong capitalization of the group and its group assets of RM32 billion ($8.51 billion) as further positive attributes of the deal.
Many speculate that the transaction was forged by Southern Bank's desire to become an established regional bancassurance player. Presently, the Malaysian banking institution is involved in a bancassurance partnership with American International Group (AIG) in its home market.
Those same analysts also believe that by acquiring the holding company of one of Singapore's oldest insurers, Southern Bank will greatly benefit from cross-selling opportunities and make itself less susceptible as an acquisition target.
The proposed purchase of AGH by Southern Bank seems to come at the expense of the prior acquisition attempt by Malaysia's Public Bank. Malaysia's third largest bank by assets emerged as the early front-runner but unlike its domestic rival, only expressed interest in AGH's 75% stake in its life insurance business.
Although Public Bank has declined to comment on the proposed Southern Bank purchase, analysts believe that a purchase of the holding company would shelve the sale of the life insurance arm.
Similar to Southern Bank, Public Bank expressed that an Asia Life Assurance purchase would extend its range of financial services and enhance bancassurance activities prior to the 2008 liberalization of the Malaysian banking market.
