China Construction Bank Mulls Stake in EON Capital

China Construction Bank Corp. has approached the Malaysian government about buying a stake in private equity-backed lender EON Capital, Reuters reported. EON Capital is currently the subject of a legal battle involving its largest shareholder, Hong Kong-based private equity fund Primus Pacific Partners, and other shareholders, over a plan by Hong Leong Bank to acquire the smaller lender, Reuters reported. Primus filed a lawsuit to stop Hong Leong Bank from taking over EON Capital.

(Reuters) – China Construction Bank Corp (CCB) has approached the Malaysian government about buying a stake in lender EON Capital, a source with direct knowledge of the matter told Reuters on Monday.

China’s No.2 lender is awaiting Malaysia’s Ministry of Finance’s response to its request for approval to begin talks with major shareholders in Malaysia’s seventh largest bank by market capitalisation.

“This is still at a very early stage. We’ve informed the Malaysian finance ministry,” said the Beijing-based source.

“There are many other departments, including the Malaysian central bank. This might even need the approval of the prime minister. The specifics of the approval process aren’t entirely clear,” said the source, who asked not to be named because of the sensitivity of the deal.

EON Capital, with a market capitalisation of about $1.6 billion, is the subject of a legal battle involving its largest shareholder, Hong Kong-based private equity fund Primus Pacific Partners, and other shareholders, over a plan by Hong Leong Bank to acquire the smaller lender.

Primus filed a lawsuit to stop Hong Leong Bank, Malaysia’s sixth largest lender, from taking over EON Capital last year.

The case is ongoing.

When contacted, a Bank Negara official said: “As a matter of policy, the central bank does not comment on individual institutions.”

Primus and CCB also declined to comment, while EON could not be reached for comment.

RIPE FOR CONSOLIDATION

Stanley Li, a Chinese banking analyst with Mirae Asset Securities, said a move by CCB on EON would be in line with Chinese banks’ strategy to expand overseas, and Southeast Asia was a natural choice given their relatively close trade relationships.

“Most Chinese banks’ Chinese business accounts for 90 percent of their revenue. In the longer run all the banks will need to diversify their revenue sources to outside China.”

The consolidation of the Malaysian banking sector has become a heated topic of late.

The Abu Dhabi Commercial Bank , for example, has put its 25 percent stake in RHB Capital on auction at an indicative price of $1.5 billion. [ID:nL3E7FL1ZN]

It has also been reported that the Australia and New Zealand Banking Group , which owns 24 percent of Malaysia’s AmBank Group , the country’s fourth-largest lender, is interested in bidding for the RHB Capital stake.

The government has further stoked speculation that consolidation may happen sooner rather than later after saying it wants to see Malaysian banks transform into “regional champions” as part of its plan to move the country up the value chain.

The last several years have seen a number of Chinese companies listing on the Malaysian stock exchange, while a special banking license was granted to Industrial and Commercial Bank of China last year to set up operations in the nation’s capital.

“CCB is kind of a late mover in overseas expansion but I think it’s inevitable that they make some acquisitions overseas,” Li said. “So far, ICBC and Bank of China

are the early movers in this regard, so CCB is just catching up with competitors.”

Bilateral ties between Malaysia and China have also been improving, with the Malaysian government opening its doors to more Chinese investments.

In a bid to further strengthen ties, Chinese Prime Minister Wen Jiabao will visit Kuala Lumpur on Wednesday.

(By Zhang Shengnan, Don Durfee and Min Hun Fong; Additional reporting by Terril Yue Jones in BEIJING; Writing by Julie Goh; Editing by Lincoln Feast)