BAY shares jump 6% on likely takeover
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Japanese mega-bank MUFG to acquire 51%, reports say
Bank of Ayudhya’s share price yesterday surged 6.11 per cent to the highest level in six months despite the bearish sentiment of the stock market, as investors welcomed the news that Japan’s largest lender would seek a majority stake in the Thai bank.
Unconfirmed reports over the weekend said Mitsubishi UFJ Financial Group (MUFG), the parent of Bank of Tokyo-Mitsubishi UFJ, the largest bank in Japan by assets, was in the final stage of taking over a 51-per-cent stake in BAY for about 400 billion yen (Bt126.8 billion) as part of its strategy to grow overseas business, primarily in Asia.
Standard & Poor's Ratings Services said yesterday that that it will review its ratings on BAY, which is now at "BBB" with stable outlook.
"If MUFG infuses capital into BAY, or the Thai bank's capital adequacy rises by way of the bank's merger with MUFG's Thailand business, it could positively affect our assessment of BAY's capital and earning score, which we currently assess as moderate. Even a moderate capital infusion could raise our assessment of BAY's capital and earning to an adequate category.
"BAY could also potentially benefit from group support, depending on its importance to the overall regional expansion strategy of the MUFG group, the degree of management and operational integration, and the potential likelihood of financial support that MUFG group may extend to BAY, if MUFG acquires majority stake in the bank. However, this potential support may fructify only over time," the rating agency said.
Fitch Ratings said Japan’s mega-banks were pursuing their search for offshore growth opportunities to compensate for stagnant domestic operations and to help diversify earnings. It expects growth of 10-20 per cent in their overseas lending in the current fiscal year, with the focus market being emerging Asia. The agency also believes the enhanced capitalisation allows more options for overseas expansion apart from organic growth.
MUFJ is one of Japan’s three mega-banks along with Sumitomo Mitsui and Mizuho.
“The entry of a new shareholder with corporate-banking expertise could strengthen BAY as a financial institution. We, therefore, maintain our ‘buy’ rating,” Bualuang Securities said in a research note yesterday.
Half of the stake in BAY will be sold by GE Capital International Holdings. After GE Capital’s divestment of 7.6 per cent of its stake in BAY last September 25, it still has 25.4 per cent in the Thai bank (and possibly a significant holding of non-voting depository receipts).
KGI Securities noted in research yesterday that the Japanese bank would acquire all of GE’s 25-per-cent stake in BAY. Then MUFG will make a tender offer for an additional 26 per cent. The Rattanarak family, the existing major shareholder, will maintain its 22-per-cent stake in BAY.
The price could be as high as Bt40 per share, according to KGI, compared with yesterday’s closing of Bt34.75. Despite the short-term benefit to the share price, the house foresees a risk in the medium term when BAY undergoes a management restructuring.
Focusing on retail banking business, BAY last year posted Bt14.6 billion in net profits, up sharply from Bt9.3 billion in the previous year. In the first quarter of this year, its earnings reached Bt4 billion.
BAY yesterday said in a filing to the Stock Exchange of Thailand that it had not yet been informed by the strategic shareholder, GE, of any transaction.
MUFG has been in the news several times as a potential suitor for BAY, along with CIMB Bank and Maybank. The talks have been going on for months, with one stumbling block: Thailand does not allow foreign banks with branches in the country to own stakes at other local banks. It is likely that the Bank of Tokyo-Mitsubishi branch would be integrated into BAY.
The Japanese bank’s operations in Thailand have so far focused on support through a branch in Bangkok to Japanese companies operating in the Kingdom.
Meanwhile, Somchai Sujjapongse, director-general of the Finance Ministry’s Fiscal Policy Office, said yesterday that MUFG had discussed the takeover with the office twice. However, both Somchai and Bank of Thailand Deputy Governor Krirk Vanikkul said the Japanese bank had not yet submitted the official application for the takeover.
Foreign banks need to file such an application if acquiring more than 10 per cent in a Thai bank.
“Applications will be filed when the deal is finalised,” Krirk said.
