Wednesday, July 24, 2013

Maybank Must Explain BII Investment Losses

On 20 June 2013, Maybank has quietly announced that the Bank “has disposed of 5,065,380,000 ordinary shares in BII, representing approximately 9% of the issued and paid-up share capital of BII, to a third party investor”.

Maybank has been under pressure to sell its stake in BII due to the Indonesian stock market regulation which requires that at least 20% of BII’s shares to be “free float”.  This was a condition imposed by the Indonesian authorities and accept by Maybank when BII was acquired in 2008.  With the completion of the disposal, the free float of BII shares has increased from around 2.7% to 11.7% of the issued and paid-up share capital of BII.

The curious question was raised however when there was surreptitiously no mention of the price of the transaction, and no mention of who this 3rd party investor was.  The price of the transaction is crucial because that will determine if Maybank had made and realised losses in the sale in the light of the fierce criticisms it received from all parties during the acquisition.

BII was acquired at the cost of RM8.25 billion at approximately Rp455 per share. Maybank was flayed by critics for paying more than 4 times the asset value of BII.

In May 2008, the then Prime Minister Tun Abdullah Badawi defended the acquisition claiming that "the government is confident that the management of Maybank and its Board of Directors have made the purchase not only in the best interest of Maybank but also for the country."  Later in October 2008, the then Finance Minister Dato’ Seri Najib Razak insisted that “the move was still a good one for the country”.

In fact, as late a  January 2012, Maybank Chairman Tan Seri Megat Zaharuddin bin Megat Mohd Nor told Reuters that Maybank is “not going to sell down if we're going to make a loss compared to what we thought it should be.”  The Chairman argued that “we don't think we need to give a discount.”  Zaharuddin, who is also BII's president commissioner, said the bank will not sell BII's stake below Rp510 per share, the price it paid to buy the bank in 2008 before discount.

However, in the 1st July 2013 issue of The Edge, it was revealed “according to banking sources” that the 9% stake had been sold at Rp355 per share, or a significant 21.9% lower than the cost of acquisition.  This 9% stake sale will immediately translate to an estimated realised loss of RM157 million.  And if these loss is extrapolated, Maybank could be looking at a potential loss of RM1.74 billion.

What is worse is if we were to look at BII’s stock price performance since the acquisition 5 years ago.  As at last week, BII shares closed at Rp315 or a 30.7% drop from the acquisition price.  This is despite the global equity markets hitting record highs currently.  At this price, Maybank is already staring at staggering paper losses of RM2.5 billion as a result of the BII acquisition.

This is despite assurances by Bank Negara, represented by Assistant Governor Puan Nor Shamsiah binti Mohd Yunos to the Public Accounts Committee on 18th November 2008 that the acquisition “will result in very minimal impairment to Maybank”.  Despite myself expressing reservations during the meeting then over the potential impairment value, the Deputy Governor Dato’ Zamani bin Abdul Ghani supported Puan Nor Shamsiah’s assessment that any impairment will be minimal or at most “in the region of RM300 million” if the conditions don’t improve.  In reality, as at 31 December 2012, Maybank has already made impairments of RM1.62 billion for the acquisition.

In fact since the acquistion, the return on Maybank’s investment in BII has been abysmal at -0.17%, 1.86%, 2.31% and 6.27% in 2009, 2010, 2011 and 2012 respectively.

Despite the above, in the announcement to Bursa Malaysia, Maybank has claimed that the disposal will not result in any material financial impact to the Group.  However, evidence points to the contrary and in the light of billions of ringgit of losses incurred by Maybank as a result BII’s acquisition, it is crucial now for Maybank to come clean, particularly with regards to the most recent disposal of 9% of BII’s shares at Rp355 per share.  More losses will likely be realised when Maybank is forced to sell another 8.3% of BII shares to third parties by 31 December 2013, the new extended deadine granted.

We also call upon the Finance Minister, Dato’ Seri Najib Razak to personally look into this matter, whether the cause of the losses was “a bad business decision” or possibly a reckless abuse of power.  Whichever the cause, action must be taken against those found at fault so that the rakyat’s interest in Maybank Bhd will continue to be protected.

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