Large-stake deal shakes up BankThai

BankThai (BT) shares surged to as high as Bt1.93, or 41 per cent up, yesterday as investors piled into the stock after CIMB (Bumiputra-Commerce Bank) Group of Malaysia signed a deal to buy a 42.13-per-cent stake from the Financial Institutions Development Fund (FIDF) at a substantial premium.

It ended at Bt1.71, up 39 per cent, at the close after touching lower at Bt1.69.

Analysts recommended a "sell" on the small local bank as CIMB expects that it needs additional capital of about Bt5 billion-Bt6 billion and the deal is still holds some uncertainties.

The stock jumped to Bt1.83 at the open yesterday from its previous close of Bt1.32, before it was suspended on June 18.

The stock was the largest gainer in the market yesterday.

The Stock Exchange of Thailand (SET) yesterday allowed the ceiling and floor levels of the stock to be widened by 100 per cent from the normal 30 per cent level, a move that usually accompanies stocks when they are allowed to trade again after being suspended.

CIMB, which will become BT's largest shareholder, agreed to buy 2.81 billion shares in BT from the FIDF at Bt2.10 each for a total of Bt5.9 billion.

Asia Plus Securities recommended investors to sell BT.

"Our research department has not received clear information about BT's business development under CIMB. Although CIMB is a financial institution which has expertise in investing in commercial banks in other countries, it is still sceptical about its management to strengthen BT," the broker said.

"Besides, BT still needs additional capital to raise its capital adequacy ratio to be above the central banks' minimum requirement. We estimate that BT needs at least Bt6 billion to raise its first tier capital to 6.19 per cent.

"Based on the selling price of the new capital increase to be adjusted to book value at 1-1.5 times, the bank needs to issue 5.07 billion to 7.61 billion shares, or more than double from the current paid-up capital, and this would lower its EPS."

Seamico Securities recommended BT's retail investors to accept the tender offer to be made by CIMB as the offering price was 2.9 times greater than the bank's book value of Bt0.72 as of March 31.

The tender offer is expected to be completed within the fourth quarter this year with a condition that the Finance Ministry must approve the second largest bank in Malaysia to hold a 100-per-cent stake in BT, the broker said in a note.

The broker estimated that CIMB would have to spend around Bt14 billion for the tender offer.

Moreover, selling the stock via the tender offer could mitigate risk from BT's recapitalisation in the future as CIMB estimated BT might need another Bt5 billion to Bt6 billion capital to strengthen its financial position, it said.

An analyst at Kim Eng Securities (Thailand) recommended a speculative "buy" to lock in profits. However, it recommended cutting losses if it dips below Bt1.40.

The CIMB deal has not been completed yet as it is subject to an approval from the Thai Finance Ministry and Bank Negara Malaysia, the analyst who declined to be named said.

"The deal remains unclear if it will obtain the approval from the Finance Ministry as it reportedly wanted the Bank of Thailand to clarify BT's recent re-capitalisation before selling the shares. Initially, the deal should remain uncertain. It should take some time before it is concluded," the analyst said.

Investors should be prudent about the risks and sell if they have already profited from the rise in prices, he said.

Deputy Prime Minister and Finance Minister Surapong Suebwonglee promised it would not take much time before making a decision whether or not to approve the sale of BankThai to CIMB.

 "The deal between FIDF and CIMB has been concluded, but would be up to the authorities to consider whether it would allow foreign partners to hold more than the portion stated under the law," said Surapong.

 The FIDF, however, had not yet asked him to approve the deal, he said.

 He also said he would wait for the fact-finding committee to report to him about previous recapitalisation approved by the former finance minister.

He said he wanted to examine whether procedure was carried out in line with the law.

"Investors are chasing the stock on the news [about the deal]," said Sasikorn Charoensuwan, an analyst at Phillip Securities in Bangkok. `

"They are looking at short-term gains. Its business outlook won't change until next year."

It may be five years before BT makes a "significant"' contribution to CIMB's profit, Bloomberg quoted Keith Wee, an analyst at OSK Research in Kuala Lumpur, as saying.

While CIMB plans to inject as much as 600 million ringgit (Bt6 billion) of capital to help restore earnings at BT, analysts estimated the Thai lender may not return to profit until next year.

"We expect investors to be sceptical about Bumiputra-Commerce's ability to create value from the BT deal," Danny Goh, an analyst at Credit Suisse Group with an "outperform" rating on the stock, said.

BT, the smallest of four state-controlled banks, lost money last year partly from a write-down of collateralised debt obligation investments.