This article first appeared in The Edge Malaysia Weekly on January 20, 2025 - January 26, 2025

DBS Group Holdings Bhd’s reported interest in taking up Vertical Theme Sdn Bhd’s (VT) 29.06% stake in Alliance Bank Malaysia Bhd (KL:ABMB) comes as no surprise to many. A pertinent question, though, is whether the Malaysian government will allow the Singaporean lender to do so.

Alliance Bank, the country’s smallest banking group by assets, is backed by Singapore state investor Temasek Holdings Pte Ltd. VT is 49% held by Duxton Investments Pte Ltd, which is ultimately owned by Temasek.

The other 51% in VT is held by Langkah Bahagia Sdn Bhd, a private company owned by Singapore-based hotel and property tycoon Ong Beng Seng, private equity RRJ Capital founder Richard Ong Tiong Sing and corporate adviser Seow Lun Hoo. All three are Malaysians.

Beng Seng’s interest in the bank, through VT, has come into the spotlight because of his corruption probe in Singapore, which raises questions about his suitability as a bank shareholder. This could be the trigger for VT to sell its stake in Alliance Bank, a source says.

Beng Seng faces two charges in relation to former Singapore transport minister S Iswaran, who is currently serving time in jail for his offences. Based on latest news reports, Beng Seng has yet to indicate whether he will claim trial or plead guilty.

Bank Negara Malaysia has strict requirements for substantial and major shareholders of banks, as set out in its policy document on shareholder suitability issued in August 2016. For example, a shareholder must not be the subject of any criminal proceedings or convicted of any offence involving dishonesty, fraud or other financial crimes.

According to a Bloomberg report on Jan 16, VT plans to seek approval in the coming weeks from Bank Negara to start talks about selling its stake in Alliance Bank. The newswire, citing people familiar with the development, said VT is considering selling the roughly 29% stake to DBS.

It went on to say that if a deal goes through, DBS may consider raising its stake in the Malaysian bank to up to 49% via a voluntary partial general offer.

Alliance Bank’s other shareholders are the Employees Provident Fund with a 8.07% stake as at Jan 14, and Global Success Network Sdn Bhd with a 4.98% stake. Global Success is the investment vehicle of Lee Thiam Wah, founder of retail chain 99 Speedmart.

Back in May 1997, Langkah Bahagia coughed up RM190 million for a 51.8% stake in Hock Hua Bank (Sabah) Bhd. One of its former directors, Datuk Mohd Nasir Ali, said at a news conference at the time that he was holding the equity interest for Tun Daim Zainuddin, the former finance minister who passed away late last year.

“Daim is an interested party in this deal. I’m a nominee for a portion of his shares in Langkah Bahagia,” Nasir is reported to have said, without elaborating.

Later down the years, Hock Hua Bank morphed into International Bank Malaysia. This bank, in turn, merged with other financial institutions, including Multi-Purpose Bank, to create an entity that later became Alliance Bank.

In April 2016, Beng Seng, Tiong Sing and Seow bought their shares in Langkah Bahagia from Lutfiah Ismail, an associate of Daim. At the time, analysts said the three were believed to be parties friendly to Temasek and, as such, corporate developments down the road could not be discounted.

Sources indicate that the shareholding was such that it was always meant for DBS to enter Malaysia.

Temasek is the single largest shareholder of DBS, with a 31.91% stake. DBS, which is the largest bank in Southeast Asia by assets, does not have a presence in Malaysia and coming in now would help it plug a gap in the region. Its relatively smaller Singapore rivals OCBC and UOB, however, have long had operations in Malaysia.

With the ongoing development of the Johor-Singapore Special Economic Zone and improving relations between Malaysia and the island republic, some think there is a window for DBS to finally come in.

However, it remains to be seen if the government will be amenable to DBS entering Malaysia. There are, after all, implications to DBS coming in and having direct holdings in a local bank. “With DBS’ strong balance sheet size, connections and so on, how might this affect the local banking landscape, especially the bigger players like Maybank (Malayan Banking Bhd) (KL:MAYBANK) and CIMB (Group Holdings Bhd) (KL:CIMB). Would the government seek some kind of reciprocal rights for them in Singapore?” one observer asks.

Other observers note that it is unlikely that DBS would stop at just an associate stake in Alliance Bank (with 29.06%) and that it would make strategic sense for it to seek a controlling stake so that it can consolidate the Malaysian bank’s earnings. The question arises as to whether Bank Negara will allow this.

At present, there is a 30% cap on foreign ownership for Malaysian commercial banks.

The Financial Services Act 2013 is, however, silent on shareholding limits for institutions. Under the previous banking act, BAFIA 1989, institutional shareholders were subjected to a limit of 20%, with anything beyond that then left to the central bank’s discretion.

DBS’ assets stood at S$789.61 billion as at end-September last year., while Alliance Bank’s was at RM81.02 billion. In comparison, Maybank’s stood at RM1.05 trillion.

Alliance Bank’s shares rose 4% to close at a record high of RM5.16 last Friday (Jan 17), giving the bank a market capitalisation of RM7.99 billion. At that price, VT’s stake in the lender was worth RM2.32 billion. Meanwhile, DBS rose 0.16% to S$43.85, valuing the bank at S$124.52 billion. 

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