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Friday, 26 July 2013

DRB-Hicom will have a proposal in next couple of months

With reference to our blog post : DRB-Hicom a Financial Holding Company? dated 8 July 2013. The Edge weekly interview CEO of Bank Muamalat Malaysia Datuk Mohd Redza Shah Abdul Wahid on it 22 July 2013 issue.

The Financial Services Act 2013 affects DRB-Hicom, which would need to aaplu to Bank Negara to be approved as a Financial Holding Companies (FHC), analysts say. But it does not make sense for the group, which is controlled by prominent businessman Tan Sri Syed Mokhtar Albukhary, to be a FHC because it is also invloved in other, bigger business like automotive, energy and ports. Bank Muamalat accounts for only a small part of the group's revenue - about 7% last year. Reported The Edge weekly.

According to Syed Mokhtar Albukhary a  Biography . Tan Sri Syed Mokhtar have connection with Minister in Datuk Seri Shahidan Kassim (Minister in the Prime Minister's Department) and Deputy Prime Minister Tan Sri Muhyiddin Yassin. The trio know each other when they were nobody. Syed Mokhtar later connected to former Prime Minister Tun Dr. Mahathir bin Mohamad.  it is not sure whether government would give him special treatment base on the above powerful connection.

DRB-Hicom has attempted thrice to pare down its  interest to 40% , to sell its excess stake to Bahrain-base Islamic lender Al Baraka, Bank Islam Malaysia Bhd and Affin Holdings Bhd over 5 years. Reported The Edge weekly.

Mohd redza told The Edge weekly that the group is looking at the best move forward. " I think, in the next couple of months, it'll come back with a proposal."

"we are open to various options because the banking market is saturated, the regulatory complinace costs are getting higher and operation consts are also going up due to high overheads, especially in terms of manpower costs. So, the logical thing to do is a consolidation."

The group is open to a merger with another bank, including Bank Islam, if make sense.

" I guess Bank Islam is one of the option. We're open to any bank that adds value to existing shareholders and the furture of the bank" Mohd Redza told the Edge weekly.

The Star on 15 March 2013 reported that parent to both BIMB and Bank Islam, pilgrim fund Lembaga Tabung Haji  is revisiting the idea of a mega Islamic bank involving a merger between BIMB and Bank Muamalat Malaysia Bhd.

A BIMB-Bank Muamalat merger would put the combined entity ahead of Maybank Islamic Bank, currently the country's largest Islamic bank by assets (97 billion) and Asia-Pacific's largest syariah lender, market watchers said. Bank Muamalat has an asset size of RM21 billion.

DRB-Hicom, as the country's biggest automotive group with over 20 marques such as Proton, Honda and Volkswagen, derives the bulk of its earnings and revenue from this business.

In FY2013 ended March 31, its automotive division accounted for about 77% of totoal group revenue of RM13.13 billion.

According to FSA, a company can propose another company within its corporate group to be  approved as a FHC if it can be shown that the proposed company is in a position to have control over  a licensed person and its proposed financial group. " You could put another structure in between DRB-Hicom and the bank. You could create an SPV to hold the bank in stead of DRB-Hicom" Says a source.

However, analysts do not believe this option will hold water with Bank Negara, especially since the central bank had wanted the group to reduce it 70% stake to 40% as far back as five years ago.

However,  as it is a requirement that unable to fullfill for 5 years and there is no SPV in between DRB-Hicom and Bank Muamalat.  Why DRB-Hicom still allowed to increase it gearing to acquired Proton and Pos Malaysia Berhad?

Just on 13 July 2013, DRB-Hicom proposed to acquire the Minister of Finance Inc's entire 96.87 per cent equity interest in Composite Technology Research Malaysia (CTRM) for RM298.26 million. Do you think a potential FHC can increase it gearing before cleaning it own house? Further, DRB-Hicom never clarified on untally figure on analyst's report! Actual gearing and "interest cover" might be higher!

Update : BIMB in RM6.7bil deal
Valuation of UniAsia Life Insurance Bhd  on the low side

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