UPDATE 2-ANZ enters Malaysia with $296 mln AMMB stake buy http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-11-24T034005Z_01_SYD292078_RTRIDST_0_FINANCIAL-AUSTRALIA-ANZ-UPDATE-2.XML&rpc=66&type=qcna
Thu Nov 23, 2006
(Adds fund manager comments, details, updates shares)
By Denny Thomas
SYDNEY, Nov 24 (Reuters) - Australia and New Zealand Banking Group Ltd. (ANZ.AX: Quote, Profile, Research) said on Friday it would pay A$383 million ($296 million) for a minority stake in Malaysian lender AMMB Holdings Bhd (AMMB.KL: Quote, Profile, Research), accelerating its Asian growth.
ANZ -- Australia's third-biggest lender -- paid a near 26 percent premium over AMMB's last traded price of 2.99 ringgit for a 13.5 percent stake, valuing Malaysia's fifth-biggest bank at 7.96 billion ringgit ($2.19 billion).
ANZ has been gradually building its Asian presence, buying between 10 and 85 percent stakes in banks from Indonesia to China. It has spent A$1.18 billion so far in its Asian expansion.
But ANZ shares slipped 0.9 percent to A$28.00 by afternoon, outpacing a 0.3 percent fall in the benchmark S&P/ASX 200 Index <.AXJO> as some investors perceived the acquisition to be expensive and delivering returns only in the long run.
"On the face of it, it does look an expensive deal, but when you look at the growth potential, it may not be," said Hans Kunnen, head of investment market research at Colonial First State, Australia's top fund manager with A$100 billion under management.
"It's a foot in the door of a game. It's a strategic investment with potential for long-term growth. And it certainly makes sense, if you have a positive long-term view about the growth of Asian economy," Kunnen added. Malaysia's banking market is overcrowded, with nine local banks serving a population not much larger than that of Australia, which has four main local banks.
But the Malaysian population is young and increasingly affluent, with 80 percent under the age of 44. Despite an over-banked marketplace, profits among the bigger local and foreign banks have been growing at double-digit percentages.
The deal values AMMB at about 20 times forecast earnings against the sector average of 16 times, while ANZ itself trades at a price-to-earnings ratio of about 13.3 for fiscal 2007 profits.
Operations from Australia and New Zealand contributed a dominant 90 percent to ANZ's last fiscal year net profit. Asia contributed just 3.4 percent, but it recorded the fastest growth.
ANZ said its total stake in AMMB could rise to 20-25 percent if talks with strategic shareholder AmcorpGroup Berhad (AMCO.KL: Quote, Profile, Research) conclude successfully.
ANZ had mixed success with some of its previous Asian ventures and sold its Grindlays Asia banking network in 2000 to Standard Chartered (STAN.L: Quote, Profile, Research) for US$1.3 billion, aiming to cut its exposure to emerging markets after it was hurt by the Asian economic crisis in the late 1990s.
ANZ would subscribe to AMMB's preference shares worth A$178 million and also buy exchangeable bond issued by a AMMB unit worth A$205 million.
CROWDED MARKET
The big established foreign banks in Malaysia -- Citigroup (C.N: Quote, Profile, Research), HSBC Holdings (HSBA.L: Quote, Profile, Research) and Standard Chartered -- all say they want to expand in the country but see no point in a minority stake in a local bank, preferring to grow branches within strict central-bank controls.
"We will certainly look at things but our focus here in Malaysia is organic growth," StanChart Malaysia's acting chief executive, Julian Wynter, told reporters this week.
Malaysia is also a major centre for Islamic finance, which bans interest and often structures returns as profit-sharing agreements. Islamic bank assets account for 12 percent of the total, and this is targeted to make up 20 percent by 2010.
Earlier this week ANZ bought a 19.9 percent stake in China's Shanghai Rural Commercial Bank for US$252 million, following a three-year relationship with the bank.
Last year it bought a similar size stake in Tianjin City Commercial Bank in northern China. Unlike ANZ, National Australia Bank Ltd. (NAB.AX: Quote, Profile, Research), Australia's top lender, has stayed out from investments in China due to the 20 percent ownership limits in banks.
(Additional reporting by Mark Bendeich in Kuala Lumpur) ($1=A$1.29)
($1=3.635 Malaysian Ringgit)
© Reuters 2006. All Rights Reserved.