Sarawak on verge of raising stake in Affin Bank

Sarawak on verge of raising stake in Affin Bank

This article first appeared in The Edge Malaysia Weekly on January 8, 2024 – January 14, 2024

THE Sarawak State Financial Secretary is understood to be close to concluding a memorandum of understanding (MoU) which will lead to a deal to acquire an additional stake in Affin Bank Bhd from Lembaga Tabung Angkatan Tentera (LTAT).

At present, Sarawak has a 4.95% stake in the bank. The state bought the 112.56 million shares in mid-April last year at RM1.97 per share or RM221.74 million in total.

The Edge learns that Sarawak state is keen to acquire an additional 15% in Affin from the armed forces fund that has a direct 29.7% in the banking group while its wholly-owned unit Boustead Holdings Bhd has a 20.65% stake.

The talks for the MoU were more or less concluded late last year, according to sources. However, an agreement has yet to be signed.

Should the shares successfully change hands, Sarawak state will be Affin’s third-largest shareholder with approximately 20% after Bank of East Asia, which has a 23.79% stake. LTAT will remain the single largest shareholder with a direct and indirect stake of 35.3%.

It is understood that the target was to conclude the MoU before the year ended.

“It (the MoU) was supposed to have been formalised, signed and sealed late last year, but for some reason, there has been a delay … but it should be concluded soon,” one banking source says.

Another source says that talks had been going very well for the past few months with LTAT holding out for a better price.

“I think they (LTAT) got what they wanted,” he says.

When contacted, LTAT declined to comment on the matter.

Affin’s share price has been on a steady climb over the past two years. The banking stock has gained roughly 53%, or 75.9 sen, since the start of 2022. At last Friday’s close of RM2.18, Affin was valued at a price-to-book value of 0.45 times — the lowest among its banking peers on Bursa Malaysia — despite the share price rally. Affin’s book value per share is about RM4.79.

In April last year when LTAT sold 4.95% to Sarawak, it was tied to its privatisation of Boustead Holdings, which was announced in April last year as well.

The Boustead Holdings privatisation by LTAT was concluded at 85.5 sen a share or RM703.25 million, for the 40.58% LTAT did not own, and Boustead Holdings was delisted at end-June last year.

To recap, in placing out 5% to Sarawak state, it helped LTAT reduce its shareholding in Affin to below the 50% band so it would avoid having to obtain Bank Negara Malaysia’s approval under section 87 of the Financial Services Act 2013 to take Boustead Holdings private.

LTAT and Boustead Holdings’ effective stake in Affin would have been 54.1% without the minor stake sale upon completion of the privatisation.

It is known that Sarawak has been looking to buy into a financial institution for some time now.

The state has a long history of banking groups being controlled by Sarawakian businessmen, such as Kwong Lee Bank, Hock Hua Bank, Wah Tat Bank, Bian Chiang Bank and Kong Ming Bank, but many of these were merged with larger banks, and lost their Sarawak DNA. Even Wee Cho Yaw of United Overseas Bank (UOB) in Singapore can be connected to the state by virtue of his Kuching-based businessman father.

In May 2007, Cahya Mata Sarawak Bhd (CMS) ceased to be a substantial shareholder of RHB Bank Bhd, after it sold out of the banking group. CMS via its Utama Banking Group Bhd had in 2003 sold off Bank Utama (M) to RHB for RM1.8 billion in cash and shares, giving CMS and the Employees Provident Fund control of RHB. CMS is the vehicle of former chief minister and current governor of Sarawak Tun Abdul Taib Mahmud’s family.

While previous banks were controlled by individuals from Sarawak, this time around it will be the state that has the equity in the bank.

What will transpire remains to be seen, but it has to be noted that section 46 of the Banking and Financial Institutions Act 1989 limits the shareholding of a banking institution to not more than 20% for corporations and 10% for individuals, and while there are exceptions, whether Bank Negara will allow Sarawak a larger stake in Affin remains to be seen.

Without a doubt, Affin is LTAT’s jewel in the crown.

For its nine months ended September last year, Affin — the country’s second-smallest bank — chalked up net profits of RM362.66 million on the back of RM1.5 billion in revenue. For the corresponding period a year ago, it raked in net profits of RM1.16 billion from RM2.73 billion in revenue.

Earnings in 2022 were given a shot in the arm from the sale of its 68.35% stake in Affin Hwang Asset Management to CVC Capital Partners for RM1.54 billion.

LTAT, which has some RM11 billion in assets under management, is also reeling from its plan to sell a 33% stake in Boustead Plantations Bhd to Kuala Lumpur Kepong Bhd (KLK) for RM1.15 billion or RM1.55 per share, after it was scuttled by political intervention.

LTAT and KLK were all set to privatise Boustead Plantations, but following such intervention and the sale falling through, LTAT has to fork out RM1.11 billion to privatise its plantation arm on its own while its financials are already stressed.

Hopefully, LTAT will have better luck this time as the sale of a stake in Affin to Sarawak should give its coffers a boost.

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