KUALA LUMPUR Japan's Sumitomo Mitsui Financial Group (8316.T) and U.S. private equity firm Carlyle are among leading contenders to place first round bids for a stake in Malaysian lender RHB (RHBC.KL), after bigger rival CIMB (CIMB.KL) said it is not keen to buy the stake. CIMB Chief Executive Nazir Razak brushed aside market speculation that Malaysia's second-biggest bank could bid for Abu Dhabi Commercial Bank's ADCB.AD 25 percent RHB stake, which has a market value of about $1.6 billion. His comments came after sources told Reuters on Wednesday that U.S. private equity firm TPG TPG.UL, which was partnering Carlyle CYL.UL for the bid, pulled out of the auction ahead of first round bids due on Thursday.
Carlyle is expected to bid for the stake and is in discussions with other potential partners, sources with knowledge of the deal told Reuters.
A joint bid is logical as it's a big equity check for a buyout firm bidding on its own. "No, the Abu Dhabi stake is a public thing for anyone to bid but we won't be bidding on it," CIMB CEO Nazir told reporters. "As I said, our priority is to grow CIMB in the region and the regional franchise has gaps in some markets, and we're subscale in some markets."
CIMB's decision to pass on RHB was expected, some analysts said, as Nazir had gone on record several times insisting that regional expansion was a top priority. Moreover, synergies between the two banks were absent, they said.
"CIMB does not need RHB. They have all the key divisions they need that RHB has to offer them," MIDF Amanah Asset Management's chief executive and investment head Scott Lim told Reuters.
"It makes more sense for RHB to consolidate with the smaller players, who have a better complementary fit to its businesses."
The analysts were also unsure how RHB would help CIMB lock up the retail business in Malaysia, though Nazir has said on several occasions that a consolidation of the Malaysian banking sector was inevitable.
"I would be quite surprised if CIMB were to go and buy anything in Malaysia right now," said Abdul Jalil Rasheed, a fund manager at Aberdeen Asset Management.
"CIMB would probably like to get a bank in Singapore...or the Philippines. They made it very clear that these two countries are where they are missing in the region."
Aberdeen holds CIMB shares but not RHB's.
MALAYSIAN BANKING SHAKE-UP
The sale has drawn interest from across the board including Japan's Sumitomo and private equity consortiums as the stake will grant immediate exposure to a fast-growing Southeast Asian economy forecast to expand by 5-6 percent this year. Abu Dhabi Commercial Bank is being advised by Goldman Sachs (GS.N) and Bank of America-Merrill Lynch (BAC.N) on the RHB stake sale, Reuters reported last week. [ID:nLDE74C1EF] Bankers had mentioned earlier that CIMB could also be a potential bidder for the RHB stake. A bid for the stake by CIMB would have been a precursor to a merger between the two companies, based on Malaysian banking rules and could have created Southeast Asia's second-biggest banking group by market capitalization after Singapore's DBS (DBSM.SI). "We're busy at the moment and not looking at any deals in Malaysia but that can change tomorrow," CIMB's Nazir said.
The Malaysian banking sector is expected to undergo another round of banking consolidation as net interest margins, or what a bank takes in from loans and pays out in deposits, continue to compress owing to stiff competition.
Wahid Omar, the chief executive officer of Malayan Banking (Maybank) (MBBM.KL), the largest lender in Malaysia, told Reuters in an interview that he expected to see the number of banks reduce to four to six from 10 presently, driven by "commercial considerations."
Maybank is CIMB's largest competitor and has recently drawn ahead after acquiring Singapore brokerage Kim Eng Holdings KEHS.SI for $1.4 billion.
A sector consolidation will also be in line with Malaysian Prime Minister Najib Razak's initiative to create "regional banking champions" as part of the government's economic transformation programme -- a plan to increase investment in Malaysia and move the country up the value chain.
(Additional reporting by; Stephen Aldred in Hong Kong, Sakthi Prasad in Kuala Lumpur and Saeed Azhar in Singapore; Editing by Muralikumar Anantharaman)