Japan’s Sumitomo, Carlyle Contenders for RHB Stake

Japan’s Sumitomo Mitsui Banking Group and buyout shop Carlyle Group are expected to place first round bids for a stake in Malaysian lender RHB, Reuters reported. Carlyle is expected to bid for the stake and is in discussions with other potential partners, sources with knowledge of the deal told Reuters.

(Reuters) – Japan’s Sumitomo Mitsui Banking Group and U.S. private equity firm Carlyle are among leading contenders to place first round bids for a stake in Malaysian lender RHB, after bigger rival CIMB said it is not keen to buy the stake.

CIMB Chief Executive Nazir Razak brushed aside market speculation that Malaysia’s second-biggest bank could bid for Abu Dhabi Commercial Bank’s 25 percent RHB stake, which has a market value of about $1.6 billion. His comments came after sources told Reuters on Wednesday that U.S. private equity firm TPG , which was partnering Carlyle for the bid, pulled out of the auction ahead of first round bids due on Thursday.

Carlyle is expected to bid for the stake and is in discussions with other potential partners, sources with knowledge of the deal told Reuters.

A joint bid is logical as it’s a big equity cheque for a buyout firm bidding on its own. “No, the Abu Dhabi stake is a public thing for anyone to bid but we won’t be bidding on it,” CIMB CEO Nazir told reporters. “As I said, our priority is to grow CIMB in the region and the regional franchise has gaps in some markets, and we’re subscale in some markets.”

MALAYSIAN BANKING SHAKE-UP

The sale has drawn interest from across the board including Japan’s Sumitomo and private equity consortiums as the stake will grant immediate exposure to a fast-growing Southeast Asian economy forecast to expand by 5-6 percent this year. Abu Dhabi Commercial Bank is being advised by Goldman Sachs and Bank of America-Merrill Lynch on the RHB stake sale, Reuters reported last week. Bankers had mentioned earlier that CIMB could also be a potential bidder for the RHB stake. A bid for the stake by CIMB would have been a precursor to a merger between the two companies, based on Malaysian banking rules and could have created Southeast Asia’s second-biggest banking group by market capitalization after Singapore’s DBS. “We’re busy at the moment and not looking at any deals in Malaysia but that can change tomorrow.”

The Malaysian banking sector is expected to undergo another round of banking consolidation as net interest margins, or what a bank takes in from loans and pays out in deposits, continue to compress owing to stiff competition.

The chief executive officer of Malayan Banking (Maybank), the largest lender in Malaysia, told Reuters in an interview that he expected to see the number of banks reduce to four to six from 10 presently, driven by “commercial considerations”.

Maybank is CIMB’s largest competitor and has recently drawn ahead after acquiring Singapore brokerage Kim Eng Holdings for $1.4 billion.

The merger will also be in line with Malaysian Prime Minister Najib Razak’s initiative to create “regional banking champions” as part of the government’s economic transformation programme — a plan to increase investment in Malaysia and move the country up the value chain.

(By Min Hun Fong; Additional reporting by Stephen Aldred in Hong Kong and Saeed Azhar in Singapore; Editing by Muralikumar Anantharaman)