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Sumitomo, Carlyle, JC Flowers in First Round for RHB Capital

Japan’s Sumitomo Mitsui Financial Group and private equity firms the Carlyle Group and JC Flowers are among the bidders in the first-round of an auction for a 25% stake in Malaysian lender RHB Capital, Reuters reported. The stake being sold by Abu Dhabi Commercial Bank has a market value of $1.6 billion. Abu Dhabi Commercial Bank will announce a shortlist of bidders by the end of the month, Reuters wrote.

(Reuters) – Japan’s Sumitomo Mitsui Financial Group and private equity firms Carlyle and JC Flowers are among those that submitted first-round bids for a 25 percent stake in Malaysian lender RHB Capital, sources with direct knowledge of the matter told Reuters.

The stake being sold by Abu Dhabi Commercial Bank has a market value of $1.6 billion.

ADCB’s auction of its stake in RHB has drawn international interest as the purchase would provide immediate exposure to a fast growing banking sector in a country expected to expand by 5-6 percent in 2011.

The shortlist of bidders will be announced after ADCB’s board meeting by the end of the month, the sources added. The sources declined to be identified because the discussions were private.

Malaysia’s second-largest lender CIMB Group , seen by some as a potential bidder, said on Thursday it was not in the race for the RHB stake, while U.S. private equity firm TPG pulled out earlier in the week, sources said.

The Employees Provident Fund, a state pension fund for non-government workers in Malaysia, owns 45 percent of RHB.

“If a local bank is interested in RHB, I don’t think they would speak to ADCB,” one of the sources said. “They would talk directly to the Employees Provident Fund, and if there is agreement, they would then show ADCB the price.”

ADCB was not immediately available for comment, while Sumitomo declined to comment when contacted by Reuters. Carlyle declined to comment and JC Flowers was not immediately available for comment.

One of the sources told Reuters that the bidding was expected to top 10 ringgit ($3.30) per share, representing a slim premium to Friday’s closing share price of 9.25 ringgit.

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.

LARGE MALAYSIAN BANKS, PE UNLIKELY TO WIN

Despite speculation that local banks could seize the opportunity to buy RHB and scale up, analysts told Reuters it was unlikely that the larger Malaysian banks – Malayan Banking and CIMB Group – would be interested as there was a lack of synergy.

Analysts also said that private equity fund might find it difficult to win the deal, because the Malaysian central bank, Bank Negara Malaysia (BNM) , was wary of private equities buying into banks.

“Bank Negara will not allow private equity funds to buy after the EON Capital experience,” a banker, who asked to be remained anonymous as he was not authorised to speak to the media, said.

The banker was referring to the recent completion of the purchase by Malaysian lender, Hong Leong Bank , of its smaller rival EON Capital , which took more than a year to close.

Primus Pacific Partners, a private equity fund with a 20 percent stake in EON, blocked the deal in courts for more than a year, saying the sale price was undervalued and would have resulted in a significant loss on its investment.

The banker said that the profit-oriented motives of private equities did not sit well with BNM.

Earlier this week, BNM’s governor Zeti Akhtar Aziz told reporters that banking consolidation in Malaysia would be “market driven” and the bank did not have a “prima facie stance” on the issue. ($1 = 3.032 Malaysian Ringgit)

(By Denny Thomas and Liau Y-Sing; Additional reporting by Saeed Azhar in SINGAPORE and Stephen Aldred in HONG KONG Writing by Min Hun Fong; Editing by Muralikumar Anantharaman and Anshuman Daga)