What could be the reason for rejecting Affin's bid for Eon Bank?

Thursday June 10, 2010



Making a Point - By Jagdev Singh Sidhu


REJECTION is often a painful experience in life which inevitably leads to the question why.

Was it something I did? Were there greener pastures elsewhere for the former partner?



While such a rebuff would be more applicable to people, some parallels could also be drawn to companies.



And such a question might be appropriate after Affin Holdings Bhd told the stock exchange that Bank Negara was unable to consider its application to acquire EON Capital Bhd.



On the surface, the rejection of Affin Holdings pursuit of EON Capital surely would not be due to its funding ability to execute the deal.



With the backing of its main shareholder Lembaga Tabung Angkatan Tentera (LTAT), Affin’s capacity to raise money for the acquisition seems assured.



Proponents of the deal have also argued that the enlarged bank would have synergies and benefits that would prosper all parties involved.



The voluntary general offer of not just a higher share price for EON Capital shareholders than what is on the table would mean more money for shareholders and the share component would give them the option of riding on any potential upside in the new bank.



While there are no details of the rejection by Bank Negara, it is probably known privately to Affin Holdings top management.



Perhaps the decision to reject Affin’s offer was one to go with the safer bet at this current time?



Perhaps Hong Leong Bank was the right fit and has the financial room and muscle to bring about larger benefits to a banking system?



Perhaps the decision to say no to Affin Holdings was also a way of dealing with Primus Pacific Partners Ltd, which owns 20.2% in EON Capital, unfulfilled promises and value creation it has brought to the bank?



Will the controlling shareholders of Affin Holdings continue to pump in more money to meet future financial requirements under Basel 3?



While we will not know officially the reasons for the rejection, maybe history would serve as a lesson to the why question.



One case that stands out is the acquisition of Utama Banking Group of a much larger RHB Banking Group in 2002.



Post acquisition, there were a number of issues in management that saw key people leave the group. The fortunes of RHB Banking Group was thereafter bumpy and the tough going had soured ties among shareholders and the regulators.



Eventually that problem was reversed with the Employees Provident Fund taking control and it took some bitter medicine before setting the bank onto a smoother and different direction.



Affin Holdings does not need a new shareholder to prove it can turn around its fortunes as it has been doing just that in recent times.



The bank recently had a analyst briefing on its financial results, the first in years, in which it spoke about the progress being made at the bank.



Analysts took note of the improvement management has delivered in a relatively short time with the bank chalking up above loans growth and non-interest income.



Notwithstanding that healthier hue to its fundamentals, the question in the back of analysts’ minds is the jump in numbers sustainable given the chequered history of the bank in terms of its financial performance.



AMMB Holdings Bhd, which too was burdened by bad debts and a sluggish business, has slowly rebuilt its standing and trust among investors after about three years in its turnaround programme during which tangible and significant improvement in its results were seen.



Such a sustained profit track record would surely too be needed from Affin Holdings for investors to dispel the sustainable question mark.



Also, a prolonged upward trajectory in financial performance is also necessary to quell the notion that the main shareholders and management of Affin Holdings has not created a blockbuster bank in all these years and what assurance is there, they could, at the helm of a larger entity.



In the end, sometimes keeping silent might not be appreciated by all parties but maybe it would cause people to look deep within themselves to correct whatever perception issues there may be out there.

http://biz.thestar.com.my/news/story.asp?file=/2010/6/10/business/6438883&sec=business