This article first appeared in The Edge Malaysia Weekly on April 17, 2023 - April 23, 2023

The Sarawak government’s purchase of a 4.95% stake in Affin Bank Bhd from Lembaga Tabung Angkatan Tentera (LTAT) for RM221.7 million heralds a new beginning for both the bank and the state.

The state government had attempted to get one of the five digital banking licences issued by Bank Negara Malaysia last year but it was not successful in its bid. Now, it has a toehold in the domestic commercial banking segment.

The transaction values Affin Bank at 0.4 times its book value. The price is relatively cheap considering that banking transactions are usually done at a higher valuation of closer to one time book value.

Having said that, Affin Bank’s shares have historically traded at a discount to other financial groups listed on Bursa Malaysia. That is because of its major shareholders, LTAT and Boustead Holdings Bhd, and the close nexus the entities shared with the powers that be in Putrajaya prior to 2018.

Then, with Datuk Seri Najib Razak as prime minister, both LTAT and Boustead were used as vehicles to undertake transactions that could not be done on a commercial basis. Among them was the takeover of the Automated Enforcement System in 2015 from well-connected companies and controversial land transactions involving politically connected persons and the beleaguered 1Malaysia Development Bhd.

LTAT is currently taking Boustead, which is saddled with net debts of about RM6 billion, private to restructure the company. Boustead has a 20.93% stake in Affin Bank while LTAT, after the sale to the Sarawak government, still has 28.26% equity interest in the banking group.

Logically, Boustead should have sold its stake to Sarawak instead of LTAT. But that would have required shareholder approval and taken time to complete. Hence, LTAT sold its block to facilitate Bank Negara Malaysia approval for the privatisation exercise.

Nevertheless, post-privatisation, the path is open for the Sarawak government to acquire Boustead’s block in Affin Bank. That could see it become the single largest shareholder of the banking group.

The Sarawak government has the cash and ambitions to own a banking group. Holding a 4.9% stake is meaningless. Considering that Boustead needs the money, will the state government increase its stake in Affin Bank, as institutions are allowed to hold up to 20% equity interest in a bank with Bank Negara’s approval?

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