Who should EPF choose - Maybank or CIMB?

Written by Chris Ng

There is no right or wrong answer to this question. Of course, the rule of thumb, the winner should technically be the highest bidder.

Let's ignore the pricing consideration for the moment, let's look at another perspective - the ultimate shareholding of the combined entity.

The facts are as follows:

- CIMB is owned by Khazanah Nasional Berhad (KNB) - 28.6% & EPF (12.4%) shareholding (market cap: USD20.6 billion)

- Maybank is owned by PNB (including its funds) - 56% & EPF (11.02%) (market cap: USD22.1 billion)

- RHB is owned by EPF - 45%, PNB - 3.6% shareholding (market cap: USD6.7 billion)

- Let's assume purchase consideration for the takeover is priced at current market value of RHB.

- Let also assume (for simplicity) - no rights issue by the acquiring bank

- Let's also also assume (for simplicity) that the transaction is satisfied purely by issuance of equity (no cash) by the acquiring bank

Source : The Star Online

Scenario A - Maybank takeovers RHB

The expected shareholding structure of the merged entity, Maybank-RHB:

a. PNB = (56.7% x 22.1 + 3.6% x 6.7) / (22.1+ 6.7) = 44%

b. EPF = (11.02% 22.1 + 45% x 6.7) / (22.1+ 6.7) = 19%

Scenario B - CIMB takeovers RHB

The expected shareholding structure of the merged entity, CIMB-RHB:

a. Khazanah - (28.6% x 20.6) / (20.6 + 6.7) = 22%

b. EPF - (12.4% x 20.6 + 45% x 6.7) / (20.6 + 6.7) = 20%

Our Final Thoughts

- If I am EPF, I will give serious thoughts for CIMB to takeover RHB, as I am controlling a strategic stake of 20%, which is just marginally lower than Khazanah's shareholding. As such, if I am EPF, I can still exert control over the merged entity through both shareholding and board representation.

- In contrast, if Maybank is to takeover RHB, as EPF, I will not be able to exert much control, as my shareholding stake in the merged entity is significantly below that of PNB.

DISCLAIMER: This article is not an invitation to buy or sell. It is only for educational purpose, this does not represent an investment advisory service. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. Furthermore, the information presented in this article or this blog have not been independently verified and are subject to inaccuracy. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. The author may own shares in the company. Kindly consult your investment adviser before making any investment.

Project Monitoring where the Project Financing comes from a Term Loan

Written by Milan Choo

You may come across a situation where the financing of the project of your Company comes from a term loan. The term loan may exist before the commencement of project, or that it may also exist after the project has started. Once the financing of the project comes from term loan, i.e. the banker, it would be important to have proper project monitoring, as follows:

* Project progress – the progress of the project needs to be carefully monitored. Most of often the progress would be directly monitored by the Project dept. Finance department, on the other hand, would need to keep an eye on whether the progress is on schedule. The reason being typically there is a drawdown period for term loan – if the progress of the project is delayed, the Company would not be able to drawdown the full budgeted amount during the period where the term loan is available for drawdown. Further, there is always a clause in the loan agreement that spells out imposition of penalty should there be any shortfall of drawdown amount vs the budgeted amount

* Supporting doc of project – The supporting doc of project that is used to submit to the Banker needs to be properly checked. Bankers would typically specify the requirements on types of documents that they need in order to allow for drawdown. As such, this aspect needs to be complied with

* Project visit by Banker – Banker would want to pay a visit to the Project site to understand how the project has been going on. If the project is running smoothly then there is not much to be worried about. However should there be any delay of the project, the Finance team would need to engage the Engineers up front, understand the reason for the delay and come out with a strategy on matters such as how to deal with bankers, how to present to banker during the site visit.

How can Beyond Solution Malaysia assist you?

* Speak to us if you would like to know further about financing solutions.

What should you watch Out in a Letter of Offer/ Loan Agreement from Bank Before Accepting

Written by Milan Choo

The key points – when you receive a letter of offer/ Loan agreement, whether it is related to trade line/Forex line/loan/other financing products from the Bank, you should always take note of the 2 factors below:

1) Pricing & Flexibility

Pricing, in simple term, is the cost of financing charged by the Bank. You need to be aware of the market rate, and be sure that the pricing that you get is competitive for your Company. Obviously the pricing that you get will to a very large extent depend on your bargaining power, i.e. how important are you from the Bank’s point of view. Having said that you should always try to negotiate, you never know – you may get a better pricing after negotiation.

Flexibility – this would very much relate to the covenants. You need to peruse the covenants very careful and ensure that it does not impose too much of a restriction on you. You may encounter some clauses that compel you to obtain the consent from the Bank before you can proceed with certain matters – and hence you need to consider if you need this clause to be remove, or at the very least, modify it so that instead of requiring the Banker’s consent, you merely need to notify the Banker.

How can Beyond Solution Malaysia assist you?

- Speak to us if you require assistance with the preparation of business plan for the purpose of sourcing and raising debt and equity financing.

How much would Maybank or CIMB pay for RHB?

Written by Chris Ng

Read this article from the Malaysian Insider:

http://www.themalaysianinsider.com/business/article/faced-with-criticism-bank-negara-chief-mum-about-rhb-sale/

"PUTRAJAYA, June 19 — Bank Negara governor Tan Sri Zeti Akhtar Aziz has declined comment on the central bank’s new and unusual conditions imposed in the sale of the RM5.9 billion sale of a 25 per cent stake in RHB Capital Bhd between two Abu Dhabi sister firms.Bankers have likened to the beginnings of a “nanny state” in the banking sector and say the bank should remain as regulators.“I’m not going to comment on individual banks,” she told The Malaysian Insider today when asked her response to mounting criticism to the move. The Malaysian Insider had earlier reported puzzling requirements by the central bank, including for Abu Dhabi Commercial Bank (ADCB) and new RHB shareholder Abu Dhabi investment fund Aabar Investments to adjust the sale price if the merger price is lower than the RM10.80 per share price agreed by both companies and the merger must not deviate too far from the market price so as to weaken the merged entity.The Malaysian Insider understands that after the deal was signed on Friday, Bank Negara sent a series of harsh emails to ADCB telling them to state the conditions imposed by the central bank in their press releases, which some bankers say is an aggressive and unusual intervention for such a matter.The country’s two biggest banks — CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) — have won separate Bank Negara approval to begin competing merger talks with Malaysia’s fourth biggest lender RHB Capital, triggering a takeover battle that may create Southeast Asia’s biggest bank. CIMB, led by by Datuk Seri Nazir Razak, is the front-runner for the deal. “This should be a free market transaction. Why the need for the strange conditions,” a banker told The Malaysian Insider on condition of anonymity.“Bank Negara should also allow the new shareholders to decide if they want to support a merger or not. We don’t need a nanny state in banking,” he added.Analysts have said the RHB Capital takeover could be based on a price to book value of 2 to 2.5 times which will work out to between RM9.70 and RM12 per share. Based on RHB’s share base of 2.2 billion shares, any investor buying EPF’s entire stake would have to pay up to RM26.3 billion."

After reading the article, I have been wondering what is the maximum price would MBB or CIMB pay for RHB? Is RM10.80 per share a "deal breaker"? Management of MBB and CIMB have been saying that they will only do the deal if the deal is earnings accretive (i.e the earnings per share, EPS should be higher for the combined entity than the EPS of the standalone acquiring bank).

Based on this presumption, I went to set out a simple merger analysis to compute what is the maximum price that will be offered by both MBB and CIMB (under a 100% share exchange) scenario. My simple analysis is as follows:

My preliminary observation:

In Scenario 1 (MBB merging with RHB), the maximum share price that could be offered under a proposed share exchange is RM11.63 per each ordinary RHB share before the combined EPS of the merged entity fall below RM0.51 per share (i.e the EPS of MBB before it is merged).

In Scenario 2 (CIMB merging with RHB), the maximum share price that could be offered under a proposed share exchange is RM11.90 per each ordinary RHB share before the combined EPS of the merged entity fall below RM0.47 per share (i.e the EPS of MBB before it is merged).

In conclusion, it appears that CIMB has more "room" to play in terms of the purchase consideration. This is mainly due to that the fact CIMB is currently trading at a relatively higher P/E and P/B than of MBB and as such, a share exchange will be more favourable to CIMB.

Do bear in mind that we have assumed following for the simple merger analysis:

1. Mode of purchase is financed purely by share exchange

2. Analysis is based on last audited numbers (FY2010) - should be further updated with the latest numbers

DISCLAIMER: This article is not an invitation to buy or sell. It is only my observation and for educational purpose, this does not represent an investment advisory service. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. Furthermore, the information presented in this article or this blog has not been independently verified and are subject to inaccuracies. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. The author may own shares in the company. Kindly consult your investment adviser before making any investment.

Mortgage brokers and the future of banking

Now keep in mind, many of these lenders and brokers who are now the shop had made ​​the point in their business to grow one. Subprime mortgages, option arms, rate and term refinance, no money to buy loans below the 125% LTV, all while charging 3-5 points, and put the borrower in 3 years with 2 years of poor pre-payment penalties. It is no surprise that intelligent people saw it coming a mile away, but it all seemed turned his head, untilit was too late.

Welcome to the new mortgage. Where, under the condition that for every little margin of error sources as possible if credit approval is a bit 'of the closing date in which the'. My perspectives remember me under a free-throw line to free throw shooting. The shot is, looks good, could have a noise here, and then, Doink, the ball bounced off the rim, ie not qualify. So with the current state of affairs, many mortgage brokers are looking at a plan B. If the trendSo, all that remains is to find the big banks to make loans to people with only 20%, which would need more than one mortgage broker.

125 Ltv Home Loan

In my humble opinion, is really a unique selling point. Why would someone want to do business with you? Wow what experience you give me? How do you want to separate from all these other mortgage brokers? Going into a loan, if there is qualified personnel, transfer, I would not normally have three in 2-3mortgage brokers compete with me for a loan. Need customer exceptional service to make a start, give your good faith estimates ahead of schedule, answer the phone all the time and has added value services as part of your job description . The service is closing the loans, super low prices.

What I mean is that each quotation, and everyone wants a loan of 20% paper. Well, I've got news for you, probably end up in aBank. As his agent, we get paid for the eyes and ears on the road to our customers, and this means not only getting the lowest rates. It means a program to meet our borrowers needs. And most of the time, especially in this market, you must have a value-added resources. Whether it's a quick re-credit points for the customers to enjoy, or looking for a lender that refinancing is not a day of Multiple Listing Service, a banker may not be as flexible as the retail trade. He isTell you if you fit their guidelines, and if not, good day. So the next time you hear someone say, the mortgage broker is obsolete, think again. If all have high credit scores in the country, a lot of activity and 20% set for a loan, the broker is here to stay. In addition, once the market turns around, and to assess the risk to investors and you will see these new products in the past can be introduced slowly.

Mortgage brokers and the future of banking

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