Corporate: Langkah Bahagia looking to exit AFG

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Langkah Bahagia Sdn Bhd, an investment vehicle believed to be linked to former finance minister Tun Daim Zainuddin, is looking at selling its stake in Alliance Financial Group Bhd (AFG).

Sources say the investor, which effectively owns about 14.8% in AFG via Vertical Theme Sdn Bhd, is looking to exit the banking group. Vertical Theme holds 29% in AFG.

Not surprisingly, Langkah Bahagia is said to be offering to dispose of the stake to parties related to Temasek Holdings Ltd, which indirectly holds 49% in Vertical Theme.

“It makes sense for Temasek to acquire the stake from Langkah Bahagia, as that would give the former a more meaningful presence in AFG,” a source says.

Nevertheless, there is a major hurdle for Temasek. Under the Banking and Financial Institutions Act, institutions have to obtain special approval from Bank Negara Malaysia to own more than a 20% stake in a domestic financial institution.

In view of the banking regulation, Temasek may adopt a wait-and-see attitude before deciding on the possibility of increasing its stake in AFG, says an industry observer.

“Langkah Bahagia or Temasek is not likely to seek Bank Negara approval in relation to the matter in the near term,” he adds.

Nevertheless, there has been a precedent in recent years for institutions, including foreign investors, to hold more than 20% equity interest in banking groups. For instance, Abu Dhabi Commercial Bank has 25% in RHB Capital while Australia and New Zealand Banking Group (ANZ) holds about 24% in AMMB Holdings Bhd.

A banking analyst says having a larger stake in AFG is in line with Temasek's portfolio strategy to up its game in the regional banking industry.

“There is talk that Temasek is looking at consolidating its banking assets in the region under one umbrella. At the helm would be Singapore-based DBS Group, in which Temasek has a direct and indirect stake of  27.8%,” he says.

DBS, Singapore's largest lender, is a regional banking group with a presence in Hong Kong, China and Taiwan.

The banking group is one of several regional banks that Temasek — the Singapore government's investment arm  — has stakes in. Others include Indonesia's PT Bank Danamon and Pakistan's NIB Bank. The shareholdings are held under Temasek subsidiary Fullerton Financial Holdings, which holds the portfolio for its investments in financial institutions in emerging markets.

An industry observer notes that DBS has long said it wants to beef up its presence in India and Southeast Asia. “At the same time, Temasek holds stakes in several banks in these markets, which in turn, gives rise to the possibility that it will group these assets together under DBS,” he adds.

Temasek first came into AFG as a shareholder in 2005 after it acquired a controlling stake in AFG, together with Langkah Bahagia.

To recap, Alliance Bank Malaysia Bhd, AFG's banking arm, was formerly called Multi-Purpose Bank and before that, Malaysian-French Bank. AFG was previously Malaysian Plantations Bhd, which went into the banking business after a complex restructuring at Multi-Purpose Holdings Bhd.

In the past, the bank was often linked to politicians. AFG's links to Daim began in the 1980s when he took control of Malaysian-French Bank. Subsequently, he sold the bank to Multi-Purpose group.

In 2000, when the government and Bank Negara forced a consolidation of the banking sector, Multi-Purpose Bank was surprisingly chosen as one of the six anchor banks to take over other banks.

Consequently, Multi-Purpose Bank signed merger agreements with seven financial institutions — Suria Capital Holdings Bhd, International Bank Malaysia Bhd that was under Langkah Bahagia, Bolton Finance, Amanah Merchant Bank Bhd, Bumiputra Merchant Bankers Bhd, Sabah Bank Bhd and Sabah Finance Bhd.  It was also supposed to take 60% in MBf Finance Bhd but the deal fell through.

The merged entity was then renamed Alliance Bank.

By 2004, Langkah Bahagia was Alliance's single largest shareholder with a 15.37% stake. In 2005, Temasek came into Alliance when it acquired Langkah Bahagia's stake, but not before a bit of corporate drama involving a tussle over control for Alliance Bank.

Businessman Tan Sri Amin Shah Omar Shah had suddenly become a significant shareholder at Malaysian Plantations with a near 20% block and got himself a seat on the board. But whatever his intentions, Amin Shah's tenure didn't last long and he was removed as director by several shareholders, led by Tan Sri Chua Ma Yu, via a special requisition.

The shareholders, who held slightly more than 10% equity interest in Malaysian Plantations, also sought the removal of five directors, — chairman Tan Sri Lim Yan Hai, executive director Wu Sor Hwa and directors Patrick Chin Yoke Chung, Tan Kim Leong and Abdul Sani Busu. All six directors resigned after the short tussle.

Temasek finally came into the picture in 2005 when it bought Langkah Bahagia's 15% stake via Vertical Theme. The JV later upped its stake in the banking group to 30.1%, valuing the stake at RM1.12 billion.

Daim's ties with Temasek also go beyond AFG. Prior to AFG, the state investor had teamed up with International Commercial Bank — Daim's flagship banking group with a presence in Africa and East Europe — in a consortium that acquired PT Bank Internasional Indonesia (BII).

Temasek and other shareholders in BII subsequently sold their entire stakes in the Indonesian bank to Malayan Banking Bhd in 2009.

This article appeared in Corporate page of The Edge Malaysia, Issue 847, Feb 28-Mar 6, 2011

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