This article first appeared in The Edge Malaysia Weekly on July 22, 2024 - July 28, 2024

SARAWAK expects to formalise a deal to raise its stake in Affin Bank Bhd to about 30% in about a month, according to the state’s premier Tan Sri Abang Johari Openg.

In an exclusive interview with The Edge in Kuala Lumpur last Friday (July 19), Abang Johari said the state is committed to seeing through the deal but first needs to sort out some “minor” technical issues.

“Actually, we have been given the conditional approval [by Bank Negara Malaysia] on June 12, and there’s some technical regulatory process that has to be completed, which shall soon be completed,” he said.

Asked how soon the state expected to ink a sale and purchase (S&P) agreement with the bank’s largest shareholder, the Armed Forces Fund Board (LTAT), he said: “There is indication that it will be finalised within one month.”

He declined to elaborate when asked about the conditions imposed by Bank Negara for the deal to go through. “As I said, we have been given the [conditional] approval, but there are certain technicalities that we have to furnish to Bank Negara. Perhaps at this moment I can’t give [examples of the technicalities] to you, but it is minor, very minor.”

When pressed further, he said the technicalities are not related to the size of the stake it plans to acquire in Affin Bank nor has it to do with the proposed acquisition price. Sarawak wants to increase its stake in the bank to “roughly” 30%, he said, from 4.8% now, which would result in it overtaking LTAT as the lender’s largest shareholder.

On price, he said: “We negotiated [with LTAT], on a ‘willing-buyer, willing-seller’ [basis]. That one is already finalised.” Regulation-bound, he cannot reveal the price.

Abang Johari spoke to The Edge at the bank’s headquarters in Kuala Lumpur shortly after the state signed a memorandum of understanding (MoU) with LTAT to “explore potential cooperation, collaboration, sharing of information and provision of support” to each other.

Earlier that day, theedgemalaysia.com had reported that a planned S&P agreement between Sarawak and LTAT, which would have formalised the state’s plan to increase its stake in the lender, had been delayed. Sources said the signing of the S&P agreement was meant to have taken place that Friday afternoon but had to be postponed as Sarawak wanted to “clarify some conditions” that Bank Negara had attached to the deal. Hence, instead of the S&P agreement, an MoU would be inked between Sarawak and LTAT to explore strategic investments between the two, the report stated.

LTAT currently has a 28.88% stake in Affin Bank, while Boustead Holdings Bhd — which is wholly-owned by LTAT — owns about 20%. The second-largest shareholder is Hong Kong-based Bank of East Asia Ltd (BEA), with a 23.93% stake.

It is understood that Sarawak is to acquire Boustead’s entire 20% stake in Affin Bank, as well as part of LTAT’s, thus making the state the lender’s largest shareholder.

As the largest shareholder, one would expect the state to put in its representatives on the board. Asked how many board seats it was seeking, Abang Johari brushed off the question with a laugh and said: “That one [is] to be negotiated later”. He acknowledged that, as with any financial institution, any nominee would require Bank Negara’s approval first.

Does he foresee a major revamp of the bank’s board and management? “We will cross that bridge [when we come to it],” he said.

The Edge had reported back in April, citing sources, that Sarawak was seeking two seats and chairmanship of the Affin Bank board. It said the state was hoping to nominate Tan Sri Abdul Aziz Husain, current chairman of Sarawak Economic Development Corp (SEDC), as the bank’s chairman, but industry sources pointed out that Bank Negara was likely to want the bank to have an independent chairman.

Affin Bank has 11 board members. Eight of them are independent, including non-executive chairman Datuk Agil Natt.

Abang Johari stressed that the bank will run as usual once Sarawak comes on board as its biggest shareholder.

“The bank will run as usual, except there’s a change of shareholder — that’s all. Because, the bank has its own road map,” he said.

Asked why Sarawak, unlike most states, was so keen on owning a bank when it already had a state development bank and several commercial bank branches in the state, he said the state needed a retail bank. An attempt by the state in 2021 — as part of a consortium that included Kenanga Investment Bank Bhd and Revenue Group Bhd — to apply for one of five digital banking licences from Bank Negara was not successful.

“We applied for a digital banking [licence] before but we were not successful. Actually, we wanted to have our own retail bank. The Development Bank of Sarawak is not a retail bank. Its mandate is just for infrastructure. There are not enough banks in the market.”

Hence, he said the state undertook “commercial negotiation” with LTAT on Affin Bank. “It was a successful negotiation between the two parties. So, we [will] take a stake in this existing commercial bank. And then, we just invest in this bank.”

On whether it was the state that first approached LTAT on Affin Bank, he said: “No, they sent a signal to us. They knew that we were looking, so they said — why not have certain engagement with us? So, we accepted it.”

He went on to say Affin Bank has a lot of possibilities in the state, apart from serving the retail, small and medium enterprise (SME) and business community.

“As a state, we are developing our infrastructure, the digital economy, oil and gas, all that. We need the bank to participate in this development programme that we have in Sarawak. And not just Affin, but also other banks — Maybank, CIMB, RHB, UOB, there are a lot of financial institutions that have expressed their interest to finance [our projects] because our projects are quite colossal [in size].

“We have a methanol plant now, to be officiated this Monday (July 22) and there is something else also going on in petrochemical that I cannot reveal today, but on Monday. So, there’s a lot going on,” he said.

The Edge understands that there will be an official launching ceremony of the Sarawak methanol complex on Monday.

When asked how much capital expenditure the state would need to roll out all its proposed infrastructure developments, he said: “In the last five years, in terms of infrastructure, we rolled out RM20 billion [worth of projects] — this is excluding our water supply and energy provision. So the new ones, up to the year 2030, is also a few billion ringgit. I cannot tell you the figure. I did mention [it’s] multi-billion.”

In his speech at the MoU signing with LTAT earlier that day, Abang Johari said the next significant strategic infrastructure in the state will be the development of “a deep-sea port in Kuching embracing a gas terminal hub”, and a new international airport. “These two projects will be implemented by 2028 after the completion of current feasibility studies,” he said.

On Affin Bank, he said, the lender can expand its retail customer base, given the untapped potential there. “Opportunities to work with Affin Bank are wide, among others in areas of promoting cashless payments and adoption of digital banking in Sarawak. 

“Additionally, Affin Bank can explore collaborations to support SMEs in providing access to affordable financing, while increasing literacy and leveraging [the lender’s] networking platform,” he told a packed auditorium at Menara Affin@TRX.

Affin Bank’s share price had shot up sharply over the last two weeks on expectations that Sarawak was close to formalising a deal with the major shareholder. It gained 20.2% over the period to peak at RM2.99 on July 16 before then moving lower. On Friday, it closed 17 sen or 5.72% lower than the previous day to RM2.80, which gave the company a market value of RM6.72 billion.

Bloomberg data shows that of nine analysts who track Affin Bank, six have a “sell” call, two have a “hold” and one a “buy”. The average 12-month target price was RM2.20.

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