THE BUZZ
CIMB Group has announced the acquisition of a major portion
of Royal Bank of Scotland Group PLC’s (RBS) cash equities, corporate broking,
equity capital markets and merger-and-acquisition (M&A) businesses in Asia
for GBP160.1m (RM782.9m).
OUR TAKE
Propels CIMB investment banking franchise forward. The acquisition of RBS’s investment banking
business, which is ranked among the top 10 franchises in the Asia Pacific
region in terms of market share, will essentially transform the group from the largest
investment banking franchise in ASEAN to
among the largest in Asia
Pacific, thereby allowing the group to compete more effectively for ASEAN-Asia
Pacific crossborder regional deal flows. The deal will involve cash equities,
equity capital markets and corporate advisory business from RBS in Australia,
China, Hong Kong, India, Taiwan, Indonesia, Malaysia, Singapore and Thailand,
but excluding Japan and South Korea. The group will have a new
onshore presence in Australia and Taiwan, and a substantially larger presence
in China, Hong Kong, and India. In its key markets, RBS is ranked 5th in
Australia and Top 10 in India in terms of mergers and advisory market share.
Although the enlarged CIMB is still small relative to global investment banking
bulge bracket firms which are able to leverage on much larger balance sheets
and global distribution networks, we think that the acquisition of RBS is a
small but an important step for CIMB to gradually achieve its longer-term
aspirations of becoming a truly regional universal bank. We see strategic
parallels with the group’s acquisition of GK Goh back in 2005 which was
important in cementing its existing market-leading ASEAN investment banking
franchise. With the acquisition of RBS, we are hopeful that the longer-term
synergies, arising from its significantly larger geographical reach across Asia
Pacific, will eventually bear fruit in the future.
Higher-than-expected
acquisition cost but still fair. Net
of rebates, capital injection and additional
capex on system and fixed asset upgrades, the total effective cost of acquisition
for RBS’ Asia Pacific investment banking and cash equities business amounted to
RM782.9m, significantly higher than the initial speculated RM152m pricing. That
said, on a valuations perspective it still works out to a reasonable 0.98x
P/NTA valuation pricing. We think that strong interest from the likes of Bank
of China may have resulted in the group having to raise its pricing. Excluding
synergies, the acquisition is expected to be marginally earnings dilutive (~2%
to 3%) given the fact that the RBS investment banking and cash equities
business in Asia Pacific is still largely loss making. Management expects the
deal to be earnings accretive by the
second year of acquisition, depending
largely on capital market conditions.
Source: OSK188
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