Pricey RHB Bank? ADBC is an Angel compared to Maybank

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May 08 2008
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Do you think RHB Capital (KLSE: RHBCAP, stock-code 1066) which owns Malaysia’s fourth largest bank, RHB Bank, worth RM7.20 a share? Of course if you’re one of the season stock players who punted and screamed with joy before the 1997-1998 Asia Economic Crisis, you might think RM7.20 is chicken-feed compared to over RM20.00 a share back then. Its’ founder, Rashid Hussain, was rumored to be the invincible hand in stirring up the stock price back then.

But those glory days were over and until the last day the flagship RHB (now defunct Rashid Hussain Berhad) was to be de-listed for good, I still heard complaints from shareholders and internal staffs cursing the stock and the founder. Who can blame them especially the internal staffs who thought they have gotten the golden eggs in terms of ESOS but found out the horror part of it days later? Yes, some of these staffs entitled to the ESOS priced above tens of (RM) ringgit a share suddenly saw their hard-earned money wiped out within days and towards the end of their journey, they were forced to sell at a pathetic RM1.80 a share to EPF – better than none I guess.

RHB sold to ADBCNow, back to Abu Dhabi Commercial Bank (ADCB) that finally bought a 25 percent stake in RHB Capital for $1.23 billion (RM3.87 billion) or at RM7.20 a share – about 37 percent premium to the bank’s today closing price of RM5.25 a share. With the current 25 percent ADBC is instantly the largest foreign shareholder, just behind EPF’s 57 percent (from 82 percent). FinanceTwitter wrote about the possibility of ADBC becoming the new shareholder back in Dec 2007, but the price speculated was RM7.50 a share.

The final price of 7.20 ringgit a share represents 2.2 times RHB’s book value, compared with Malaysia’s two other biggest banks – Maybank and Bumiputra-Commerce at 1.6 times and 2.1 times respectively. Since the exit of RHB’s founder Rashid Hussain, RHB Bank was like a floating ship in the Pacific Ocean without a clear direction. Although the price paid is relatively high, ADBC Chairman Saeed Al-Hajeri defended the bank’s decision justifying that the story of RHB is attractive. Huh? Just in which way and how the bank has nice story to tell besides the fact that it has huge branches thanks to multiple banks merged ranging from Kwong Yik Bank, DCB Bank, Sime Bank etc?

It was indeed a bold statement to make that RHB Bank profits could double in three years but one cannot discount that possibility considering ADBC has deep pocket and support. Besides 64 percent-owned by the Abu Dhabi government via Abu Dhabi Investment Authority (ADIA), the United Arab Emirates’s third-largest bank has an asset of about $27 billion. ADIA alone is worth about $900 billion *Whoa!* and it owns five per cent of America’s largest bank and a piece of the Toll Brothers, which is one of America’s biggest homebuilders.

ADBC acquisition compared MaybankHowever if you care to compare this acquisition to Malayan Banking Berhad’s (KLSE: MAYBANK, stock-code 1155) recent acquisition of Indonesian PT Bank Internasional Indonesia (JAK: BNII) and Pakistan’s MCB Bank (KAR: MCB) which were 4.6 and 5.12 book value respectively, you simply can’t resist the temptation to congratulate ADBC on the deal well done. So, yes it (RHB Capital) was an expensive buy but compared to Maybank’s deals, you can’t complain much and should just keep the mouth shut.

The winner is definitely EPF (Employess Provident Fund) which paid only RM4.80 share for RHB Capital from Utama Banking Group (KLSE: UBG, stock-code 6831) – a cool 50 percent profit or $600 million (RM1.88 billion). While there’s no guarantee that EPF’s profit will translates into better dividend to its members the same cannot be said about Maybank’s shareholders after Maybank’s committed of over RM11 billion (US$3.5 billion) to acquisitions in three different countries – Indonesia, Pakistan and Vietnam. On another note, I’m puzzled that RHB’s new logo unveiled today surprisingly retains the legacy of Rashid Hussain. Maybe the branding of RHB has taken its root but still it doesn’t reflects “today’s” status quo, what a waste of money!!!

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