KUALA LUMPUR, Nov 13 (AFP): Malaysia's banking sector is normally sedate but a possible rare hostile takeover has excited investors, while analysts say the move could signal a shift in the industry.
While Malaysia's stock market has been sluggish, shares in the private Southern Bank Berhad (SBB) have see-sawed in recent days on speculation it faces a take over by the government's Bumiputera-Commerce Holdings Berhad (BCHB), the country's second-largest banking group.
The bid for a merger has been spearheaded by CIMB, a BCHB unit led by the entrepreneurial Nazir Razak-brother of deputy prime minister Najib Razak-who, at 38, is known for his aggressive approach.
Defending SBB is veteran banker and its chief executive Tan Teong Hean, who has headed the successful niche bank for more than 20 years.
"It's basically a struggle for control in the corporate world. You don't see that every day and people are hoping to profiteer from it," said a banking analyst who asked not to be named.
CIMB, on October 21, obtained approval from Malaysia's central bank to begin discussions for the possible merger.
At the same time, two major SBB shareholders, the Sultan of Malaysia's Selangor state, Sharafuddin Idris Shah, and bank chairman Syed Mohamad Yusof Syed Nasir, said they had received permission to negotiate with CIMB over their stakes.
The prospect of a merger set the market alight, prompting a temporary surge in SBB's shares.
The bank's shares, which were around 3.50 ringgit (0.93 dollars) before the news, surged by over 20 per cent to a year-to-date high of 4.26 ringgit on November 7, making it one of the most active counters in weeks, before dropping off slightly.
"We are awaiting a response from them so that we can start negotiations. It is our hope that both SBB and (major shareholder) Killinghall will consider our invitation to negotiate," Nazir was quoted saying Friday in reports of the merger.
But Tan and SBB have poured cold water on any deal, although reports Friday speculated the bank's board was meeting to consider the proposal.
Tan and the Selangor royal family each effectively control almost equal percentages of shares in the bank.
SBB meanwhile, aware of its status as an acquisition target, has initiated an almost daily buyback of its shares, which analysts have said is largely a protective move.
The bank, Malaysia's ninth largest, said last week it had acquired 47.66 million shares at a total cost of 169.46 million ringgit since June 29.
The developments have sparked hopes of a much-needed second round of banking consolidation in Malaysia ahead of full market liberalisation in 2007.
The government in 2001 introduced a sweeping round of banking consolidation, merging Malaysia's 54 banks and finance houses into 10 groups, but efforts have since stalled.
"I think this hostile takeover is not a common scenario in banking in Malaysia but we do need to consolidate to have a healthier and stronger banking sector before the liberalisation," said banking analyst with OSK Securities Chan Ken Yew. However analysts remain wary that CIMB's move will lead the way.
"It's a bit too early to tell but banking consolidation in Malaysia would have to be driven by the government. It's difficult to see that banking mergers could be driven by commercial terms," said banking analyst with Hwang-DBS Vickers Research Ong Boon Leong.
Ong said it would be difficult for parties now to come to terms over the price at which banks' shares should be transacted in the case of a merger or takeover.
"This is in contrast to the Asian financial crisis, where banks went into debt and shareholders had no choice but to let go," said Ong.
Analysts say the developments are more indicative of the style of CIMB chief executive Nazir, who made his name as a dynamic investment banker and declared ambitions for his group to overtake Malayan Banking as the biggest banking entity.