KUALA LUMPUR (Oct 21): CIMB Group Holdings Bhd (KL:CIMB) is exploring taking its Indonesian arm private as tough market conditions dim prospects for a potential secondary offering, analysts said.

The second-largest Malaysian bank by assets is also weighing another option for CIMB Niaga — placement of shares to strategic investors, according to analysts who attended a Tuesday briefing led by chief financial officer Khairul Rifaie ahead of the closed period.

A privatisation is currently the “more strategic and credible option”, out of the three options discussed, CIMB Securities, the group's own research arm, said in a post-briefing note.

The considerations follow newly-revised minimum free float regulations that require CIMB to reduce its shareholding in Niaga from 91.4% to at least 87.5% by March 2027 and to 85% by March 2028 as part of a move to boost investability of Indonesian stocks.

However, a potential downgrade of the country’s status to ‘emerging market’ to ‘stand-alone market’ by MSCI have resulted in sharp sell-off in Indonesian stocks across the board, reducing the appeal of new share issuances.

The consideration remains at “a preliminary stage with regulatory hurdles to overcome”, Public Investment Bank said in a separate note, noting that a full buyout of minority shareholders may cost an estimated RM800 million.

For Hong Leong Investment Bank, a privatisation could streamline the ownership structure and provide greater flexibility in executing CIMB's longer-term strategy in Indonesia.

While the eventual structure remains unclear, “we believe a Niaga privatisation could still require some deployment of group capital, particularly if the chosen structure involves buying out part of the remaining minority interests”, the house added.