DUBAI/KUALA LUMPUR (Reuters) - Abu Dhabi fund Aabar is considering a write-down of its $1.9 billion purchase of a 25-percent stake in Malaysia’s RHB Capital (RHBC.KL), a source said, after the deal’s rich pricing helped scupper long-awaited consolidation in Malaysia’s banking sector.
Aabar agreed to pay 10.80 ringgit per share in June for Abu Dhabi Commercial Bank’s (ADCB.AD) quarter stake in RHB, valuing Malaysia’s fifth largest lender at around $7.2 billion, or 2.25 times its book value.
Aabar, the largest single stake owner in both Daimler (DAIGn.DE) and commodities giant Glencore (GLEN.L), has internally discussed valuing the deal lower to encourage Maybank and CIMB to come back with an offer for RHB, a banking source with direct knowledge of the matter said.
The fund would then likely end up with a stake in a bigger bank with a stronger valuation.
“As long-term investors, it makes sense for Aabar to be part of a larger entity which has a higher valuation than RHB, plus a lowered deal will also make a lot of people in Malaysia happy,” the source said, declining to be identified as talks are not public.
ADCB would still get the full $1.91 billion payment and Aabar would likely book a paper loss for the investment, the source said. Aabar may revalue the asset at 1.7-1.8 times book value, the source said, meaning Aabar would have to write down the value of its holding by as much as 24 percent, or $450 million.
Aabar did not respond to repeated requests for comment via phone and email, while ADCB declined to comment.
A home-grown takeover of RHB would have been a big step for Malaysia’s banking sector where an earlier round of mergers in 1998 cut the number of lenders to 10 from 54, and could spark further deals in the region.
“Valuations are reasonable at 1.7-1.8 times book,” a Malaysian analyst told Reuters. “If you look at the other smaller banks, say Alliance Financial ALFG.KL, they are trading between 1.5 to 1.7 times book.”
The analyst, who cannot be identified as he was not authorized to speak to the media, said a write-down by Aabar would send a clear invitation to Maybank and CIMB to come back to the table after its earlier pricing gaffe.
“ADCB and Aabar tried to force Maybank and CIMB to fork out the money with the 10.80 ringgit bid, but they didn’t realize that they would walk away,” he said.
A CIMB banker who was involved in the earlier negotiations of the deal told Reuters that the bank would only relook at RHB at a price below 8.60 ringgit per share, which translates to just above 1.8 times book.
A Maybank official involved in the deal was skeptical that Aabar would be willing to take such a hit. At 10.80 ringgit a share, Maybank was simply “not interested,” the official told Reuters.
Investors have also been skeptical about Aabar’s valuation of RHB.
The stock hit a closing peak at 9.98 ringgit per share, or just under 2.1 times book, after Maybank and CIMB announced their interest last June.
RHB closed at 9.03 ringgit on Monday, about 1.85 times book. In comparison, Maybank trades at 2.1 times book value and CIMB is valued at 2.56 times book.
RHB, which declined to comment on the possible revaluation, has said it is open to merger opportunities at the right price.
The Central Bank, Bank Negara Malaysia BMALAY.UL, has said in the past that it wanted RHB’s main shareholder, the Employees Provident Fund (EPF), to pare down its stake.
EPF presently holds about a 45 percent stake in RHB. Malaysian authorities are encouraging consolidation to create bigger banks that can grab regional market share.
The remaining 30 percent is mostly held by local funds.
Aabar has yet to make payment for the stake purchase and has missed an internal July 31 deadline, three sources with knowledge of the matter said, further fuelling speculation that Aabar is considering a write-down in its books.
The fund rejected a financing package presented by a consortium of international banks as being too expensive and is likely to turn to its parent International Petroleum Investment Corp (IPIC) for a loan to fund the payment, said the sources, who were not authorized to talk publicly about the matter.
IPIC was not available for comment.
Aabar, which was taken private by IPIC last year, now needs to make the payment before August 31 to complete the deal, one Gulf-based source said. It will pay interest of 6.5 percent per annum on the delayed payment, the source added.
The deal between the two state-owned firms is still expected to be completed as the oil-rich emirate will not face difficulty finding other funding avenues, the sources have said.
ADCB booked a $357 million gain from the sale when it reported its second-quarter results earlier in the month.
Additional reporting by Stanley Carvalho in Abu Dhabi and Liau Y-Sing in Kuala Lumpur, Editing by Lincoln Feast