This article first appeared in The Edge Malaysia Weekly on March 11, 2024 - March 17, 2024

AUSTRALIA & New Zealand Banking Group Ltd’s (ANZ) move to dispose of a chunky 16.5% stake in AMMB Holdings Bhd last week likely reduces the possibility of a merger and acquisition (M&A) happening anytime soon at the country’s sixth largest banking group by assets.

“It does seem so, now that there isn’t a way in [for suitors] through that large block,” observes a senior banking analyst.

On March 6, ANZ, the Malaysian group’s largest shareholder, announced that it had agreed to sell a 16.5% stake, amounting to some 546 million shares, in a block trade worth just over RM2.1 billion. The price of RM3.85 a share was at an 8.3% discount to AMMB’s market closing price of RM4.20 the day before.

The move reduces ANZ’s shareholding in AMMB to 5.17%.

The shares were taken up by “many” investors, with no one investor taking a substantial portion, according to a source with knowledge of the deal. (In Malaysia, an investor would require Bank Negara Malaysia’s approval to hold 5% or more of a bank.)

The Employees Provident Fund (EPF), which held a 10.74% stake in AMMB as at March 5, was among the investors that took up “a small portion” of the ANZ shares, as did the Retirement Fund Inc (KWAP), two other sources tell The Edge. Private equity firm Ikhlas Capital did not buy any of the shares, another source says.

The EPF took the opportunity to slightly increase its holding in AMMB as it “likes financial institutions and their ability to pay decent dividends”, one of the sources says.

All in all, The Edge understands that 85% of the ANZ shares on offer went to long-only domestic funds, while the rest went to foreign investors, mainly hedge funds primarily from Asia and some from Europe and the US.

The share sale had been upsized from an initial plan to sell just 9%, or 297.72 million shares, that were marketed at an indicative price of RM3.80 to RM3.85, based on a term sheet sighted by The Edge earlier.

Given its significant 21.7% stake prior to the sale, ANZ was seen as holding the key to potential M&A at AMMB. ANZ was widely known to have been looking for a buyer for some years now.

ANZ’s stake, coupled with that of AMMB founder and former chairman Tan Sri Azman Hashim (10.9%) and the EPF (10.74% as at March 5), could have provided a sizeable 43.3% to potential suitors looking to trigger a merger.

“With such a large concentration in the hands of three shareholders, it would have presumably been easier to negotiate a deal,” the earlier analyst points out.

The fact that ANZ chose to sell its stake in the manner that it did, and at a wider-than-expected discount to AMMB’s market price, indicates that “there was nothing on the table” with regard to M&A proposals. “Otherwise, I would think they wouldn’t just place out their block like that,” the analyst remarks.

Others, however, are not ruling out the possibility of M&A just yet.

Tushar Mohata, head of equity research at Nomura Securities, opines that ANZ’s move neither diminishes nor strengthens the prospect of M&A at AMMB.

“Any bank that wants to explore a merger with AMMB can always still speak to the existing major shareholders or the new shareholders [that took up the ANZ shares]. Yes, logistically, it may be a bit harder because there is one less large block now, but the door to M&A is not closed,” he tells The Edge.

He adds: “I wouldn’t rule out the likelihood of an eventual M&A, but it is also possible that AMMB can continue on a standalone basis for a long time. My view is that the bank is, fundamentally, in the best shape it has been in the last seven to eight years.”

In a report dated March 5, he notes that AMMB’s relatively smaller size — its market share of domestic loans is 6.2% — and sub-one-time price-to-book valuation are factors that might interest other banks.

Industry observers say Azman’s stake will be the one to watch. Azman, 84, may be amenable to selling his stake if he is able to fetch a good price. The octogenarian is still involved in AMMB as its chairman emeritus/honorary adviser — a role extended to him upon his retirement as group chairman at the end of March 2022 — and has not given any indication that he plans to sell his stake anytime soon.

Azman declined to comment when The Edge reached out to him. When he retired in 2022, he told this paper: “I am still a major shareholder and keeping my shares. I am still in the loop as chairman emeritus/honorary adviser and accessible to management for ideas/advice.”

Analysts note that there is no real pressure on him to sell, pointing out that the late Tan Sri Teh Hong Piow’s 23.4% interest in Public Bank was put in a family trust upon his death in late 2022.

The last time AMMB considered a merger was back in 2017. In June of that year, AMMB and RHB Bank Bhd decided to explore a union but called off talks after three months as they could not agree on mutually acceptable terms and conditions. Interestingly, a preliminary attempt by key shareholders of the two banks in mid-2015 also did not come to pass.

The EPF is a common shareholder in the two banks. It holds a strategic 40.4% stake in RHB.

What is clear, though, is that the investors that took up ANZ’s shares last week got them at an attractive price.

The 8.3% discount to the previous day’s market price was wider than usually seen in Malaysia block trades, Nomura’s Tushar notes.

The block was well placed out, according to a source, who points out that Asean has not seen an overnight equity placement of this size since 2021.  

ANZ had, in the financial year ended Sept 30, 2021 (FY2021), written down the value of its investment in AMMB, following the latter’s RM2.6 billion settlement with the Malaysian government over its role in the 1Malaysia Development Bhd scandal.

The write-down reduced the carrying amount of ANZ’s investment in AMMB to A$719 million in FY2021, from A$1.06 billion in FY2020. By FY2023, the carrying amount had risen to A$881 million, from A$790 million in FY2022.

“ANZ’s carrying value of Ambank of A$881 million represents a price of RM3.74/share based on our estimate, and therefore ANZ appears to be willing to sell close to its carrying value,” Tushar says in the March 5 report.

It is interesting that ANZ still wants to maintain a roughly 5.2% in AMMB. In its announcement on the stake sale, it said it would continue to have one nominated director on the board of AmBank.

The sale “is in line with ANZ’s strategy of simplifying the bank”, it said, adding that the proceeds would increase its CET-1 ratio by 16 basis points but would not have a material impact on profit.

Analysts said ANZ’s move to reduce its holding in AMMB did not entirely come as a surprise, except perhaps for its timing given that there was no recent indication that a sale was being actively considered.

“It appears the market has a good appetite for the discounted shares given AMMB’s solid fundamentals. Thus, we are not particularly concerned with the near-term overhang on AMMB’s share price performance,” Hong Leong Investment Bank (HLIB) Research says in a March 7 report.

It adds: “Looking at the RHB disposal by Aabar (on four different occasions, back in August 2018, March 2019, June 2019 and December 2020), with a price discount to the previous day’s closing of 3% to 5%, it took roughly one to two months before the bank’s share price recovered. However, the position was bite-sized at 3%-6%, unlike ANZ’s 16.5%. Extrapolating the latter against disposal size, we estimate that it could take approximately three to eight months for the market to digest this large stake.”

Operationally, the reduction of ANZ’s stake will have no impact on AMMB as the former “has played a more passive role in recent years”, HLIB adds.

Bloomberg data shows that nine analysts have a “buy” on AMMB’s stock, while six have a “hold”. There are no “sell” calls. The average 12-month target price was pegged at RM4.56. The shares fell 7.7% last week to RM3.95 on Thursday, before gaining some ground to end the week at RM4.13, for a market capitalisation of RM13.66 billion.

For the nine months ended Dec 31, 2023, AMMB’s net profit rose 8.59% to RM1.39 billion from RM1.28 billion, which fell within analysts’ expectations. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.