HONG KONG, Jan 18 (Reuters) - Southeast Asia bank acquisitions are set for a record year of volumes with more than $20 billion worth of deals in the pipeline and buyers from Qatar to Japan expected to be interested in a piece of the region’s financial houses.
Among the factors fuelling the activity are U.S. and European shareholders cashing out of high-value stakes, Asian buyers seeking to expand beyond their home market and a regional banking market that, despite rapid economic growth, remains underdeveloped.
Those factors, building over the last few years, have set the table for a potentially active year for deal junkies from Singapore to Kuala Lumpur, to Jakarta and Bangkok.
The amount of active and expected bank M&A deals in Southeast Asia in 2013 could be worth more than $21 billion, overtaking the record of $16.9 billion set in 2001, according to Thomson Reuters data.
“In the ASEAN banking sector, there is a willingness on the seller’s part to realise value, and the buyers can justify the price more easily because of the fundamentals involved,” said a Singapore-based M&A banker, who declined to be identified because he was not authorised to speak publicly on the matter.
The strong line-up of suitors for Rabobank’s Indonesian business underscores foreign banks’ appetite for doing deals in the region. At least three banks, including Commonwealth Bank of Australia Ltd, Industrial and Commercial Bank of China Ltd and Qatar National Bank, are expected to place first-round bids for the unit in what is likely to be a $400 million deal.
“This part of the world offers such tremendous growth potential and is a natural place for banks from Japan, Australia, South Korea and China to invest,” said James Ankers, co-Head of Financial Institutions in Asia at Rothschild. “It makes sense for them to make this region their first port of call.”
Other targets include TPG-backed Indonesian lender Bank Tabungan Pensiunan Nasional Tbk Pt (BTPN), which sources say could kick off in the first half of this year, as the private equity firm’s lock-up expires in March. Micro finance-focused lender BTPN has a $3.2 billion market value and an exit by TPG would trigger a takeover of the whole bank, sources say.
U.S. conglomerate General Electric is in the process of selling its remaining 25.3 percent stake in Thailand’s No.5 lender, Bank of Ayudhya. That could trigger a bid for the entire bank, valued at $6.6 billion. Japan’s biggest bank, Mitsubishi UFJ Financial Group, is among the banks interested in buying GE’s stake, Reuters has previously reported.
Vietnam and Malaysia are two other areas on the radar this year for more bank deals.
Southeast Asia, home to 600 million people, is forecast by Swiss banking group Julius Baer to boast nearly half a million millionaires by 2015 with investible wealth of $2.2 trillion, creating fertile ground for banks at a time when growth in Western markets is seen limited.
Yet the proportion of working age individuals with bank accounts in Southeast Asia pales compared with that in the developed world.
This ratio sits at 20 percent in Indonesia and Vietnam and 10 percent in Cambodia, while it is above 60 percent in Thailand and Malaysia, according to the U.S. Agency for International Development. Countries such as Australia and New Zealand have nearly 100 percent financial reach.
But launching a bank sale and completing one in Southeast Asia are two different things.
Foreign ownership restrictions exist in most Southeast Asian markets, which poses challenges to outside buyers.
Most Southeast Asian countries prohibit foreign banks from owning a majority stake in domestic banks, though central banks make exceptions in certain cases.
Indonesia last year issued new guidelines, capping foreign ownership in local banks at 40 percent. In Thailand, foreign banks need Ministry of Finance approval to own control of domestic banks. Malaysia has set a 30 percent limit, though the government has said it is open to giving greater stakes in some cases.
“The new shareholding regulation does allow for control, it just takes a bit of time. It is not putting Indonesia in the same bracket as say Vietnam or Malaysia, where there are more rigid shareholding limits. Evidence has shown it hasn’t entirely diluted demand,” Rothschild’s Ankers added.
The region also is famously volatile, so the bullish view on bank deals this year could change overnight if a currency drops, an industry fails or a government collapses.
“To be fair, there is a lot of talk and processes, but not many deals happening or closing. The regulatory structures of ownership and single presence policy is complicated, making it hard for deals to be done,” said the Singapore M&A banker.
The tough regulatory climate hasn’t stopped investment banks from building up their Southeast Asia banking teams, however, in the hope that the consolidation wave will soon take hold.
Strong economic growth in the 10-member ASEAN bloc is fuelling loan growth, and also increasing demand for wealth and insurance products -- factors adding to the list of reasons foreign and domestic bank buyers want a bigger piece of that bloc.
Southeast Asian banks trade at a premium to their Asian and global peers. On average, Southeast Asian banks trade at a price-to-book ratio of 2.7, compared with the Asian average of 1.79. That fact is what makes GE, Rabobank and TPG comfortable in selling now, while prices are high. By comparison, nearly all major U.S. banks trade below their book value.
“There is going to be a substantial increase in deal volumes, irrespective of ownership restrictions or regulatory capital issues,” said a Hong Kong-based M&A banker, who was not allowed to speak publicly about the matter. “There is some sense of stability and optimism creeping back, mainly due to the stock market rally. And with that CEO confidence will return.”