Bank of Ayudhya (BAY) yesterday announced an agreement to sell a 25.4-per-cent stake to General Electric's financial arm, following approval from the Finance Ministry and the Bank of Thailand (BOT).

Meanwhile, BankThai (BT) is also entering into exclusive negotiations to offer 500 million capital-increase shares, representing 24.99 per cent, to TPG Newbridge in a deal expected to raise fresh funds of between Bt5 billion and Bt7 billion.

Competition in the banking industry is expected to intensify following the upcoming liberalisation of the industry and has prompted existing banks to seek foreign partners to strengthen their operations.

"Through cooperation between BAY and GE Money in the credit card sector, BAY is confident the business synergy will further strengthen the bank's position and lead BAY to the forefront of Thailand's banking industry," its chairman Krit Ratanarak said in a press statement.

BAY is now the sixth largest bank in terms of assets, operating 517 branches.

Regarding BankThai's deal, its president Phirasilp Subhapholsiri said that if the deal goes through, TPG Newbridge - the Asian investment arm of Texas Pacific Group, one of the world's leading private equity firms - would become the bank's second largest shareholder after the Financial Institutions Development Fund (FIDF). TPG manages more than US$5 billion (Bt188.24 billion) of capital around the world and has invested in several industries including the banking sector.

TPG would in fact become BankThai's largest shareholder if the rescue fund sells out its holding to Thai retail investors as planned. The fund's holding in the bank would then be diluted from 48.98 per cent to about 30 per cent following the recapitalisation.

BankThai's share price closed up 8.06 per cent yesterday, at Bt6.70.

The 500 million shares offered to TPG are part of 940 million BankThai shares being offered at Bt10 par value issuance to raise its registered capital from Bt52 billion to Bt61.40 billion. The bank estimates it will raise between Bt10 billion and Bt14 billion from the overall share sale.

Phirasilp did not provide a clear picture as to whether there would be a management shake-up after the deal is completed.

"The BOT (Bank of Thailand)'s governor has agreed in principle to the planned share allocation to TPG Newbridge. But our foreign shareholding is limited to 25 per cent. Therefore we will request a relaxation from the central bank," Phirasilp said.

Foreign investors now hold about 10 per cent of BankThai.

"Right now, the bank does not set share prices on the capital increase but it's unlikely to discount from the market price," he said.

Meanwhile TPG Newbridge is conducting due diligence, which is expected to be completed within the next couple of months. The bank will later propose details of the deal to the central bank and plans to hold a shareholders' meeting on October 3 to consider the capital increase.

The deal is expected to be finalised this year, Phirasilp said.

He said the bank would remain a Thai bank and would continue with its policy to become a universal bank, despite the sizeable stake offered to TPG Newbridge.

BankThai would benefit from TPG as a prospective foreign strategic partner in terms of technology and know-how, he said.

With expected fund-mobilisation to the tune of Bt10 billion-Bt14 billion, the bank said the amount would be enough to cover its business expansion over the next three to five years. It estimated that its capital adequacy ratio would increase from 9.6 per cent to 12 per cent following the share allotment.

Regarding the remaining 440 million capital-increase shares, Phirasilp said they would be allocated to local investors next year, while the FIDF would not purchase additional shares in the bank as it has policy to gradually reduce its holding in commercial banks.

For the bank's other major shareholder, Millea Asia Pte Ltd, the move would dilute its shareholding from 5 per cent to just above 3 per cent.

Bank of Thailand (BOT) Governor MR Pridiyathorn Devakula said the bank could sell shares to a strategic partner as

long as the holding by foreign investors did not exceed the restricted levels.

Pridiyathorn said the central bank would sell its holding in BankThai only to Thai investors.

BOT senior director Phairoj Hengsakul embraced BankThai's plan to tie-up with the foreign strategic partner, saying it would help improve the bank's efficiency.

"If it can enhance the bank's efficiency, the bank's stock price will increase and the fund will get a good price from the share of sales," he explained.

Somruedi Banchongduang

The Nation