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BAY sees lower growth in wake of BTMU merger

The country's fifth commercial bank by assets, Bank of Ayudhya (BAY), is expected to face slower growth over the next two years, as it focuses on integrating its business with The Bank of Tokyo-Mitsubishi UFJ, Bangkok Branch, as well as the added expense of relocating Japanese staff.

The Bank of Tokyo-Mitsubishi UFJ, a subsidiary of Mitsubishi UFJ Financial Group, on Wednesday announced the successful completion of a Voluntary Tender Offer (VTO) for BAY, including a restructured management team and new chief executive officer.

According to analysts at Maybank Kim Eng Securities (Thailand), BAY will be less interesting in terms of its growth rate, as business growth is already expected to slow, and BAY will also have to factor in the expense of transferring Japanese staff to the bank.

The management team reshuffle will also have an impact on the business direction of BAY. The bank could shift the focus of its main consumer financing business, as MUFG does not specialise in retail banking. After management changes at the bank - especially its new head - it remains to be seen, if bank will maintain its strength in retail banking, or shift its focus to corporate banking, reflecting the strength's of BTMU.

Retail loan accounts make up 50 per cent of the bank's total loan portfolio, followed by SMEs and corporate loans.

The brokerage has recommended 'sell' on BAY shares, and targeted the BAY stock price at Bt34 per share next year.

BAY's stock price rose 1.35 per cent to close at Bt37.50 yesterday.

BAY will issue 1.14 billion common shares to BTMU, as part of the integration of BTMU's Bangkok Branch with BAY, to comply with the one-presence policy of the Bank of Thailand. The share issuance could boost BAY's profits but earnings per share are expected to decline, as well as returns on equity in the first 1-2 years.

The percentage of the shares purchased by BTMU is approximately 72.01 per cent of BAY's total outstanding shares. The Ratanarak Group, a major Thai shareholder, will own around 25 per cent, meaning that the free float will be only 3 per cent - lower than the 15 per cent required by the Securities and Exchange Commission.

Analyst at Phillip Securities (Thailand) noted that even with a small free float at Krungsri, BTMU is expected to sell its shares in hand to retail investors, to sustain liquidity after the integration.

The bank is also expected to increase its capital after the merger process is complete.

Analyst noted that, like CIMB Thai Bank, which asked the SEC to improve its free float, BAY could do the same. CIMB Thai has a free float of 6.29 per cent because CIMB Bank Berhard controlled the majority shares - more than 93 per cent.

Veraphan Teepsuwan, chairman of the board of directors of BAY, said that next month Krungsri will officially begin the process of integrating the BTMU Bangkok Branch's business with Krungsri, a process which is expected to be completed by December 2014. Krungsri plans to issue not more than 1.5 billion new shares at Bt39 per share in payment for the branch assets - a private placement in favour of BTMU - upon its 12 month's completion, at an amount of up to Bt59 billion. As a result, BTMU's shareholding in Krungsri will marginally increase, while the ratio of shareholding for other shareholders will decline slightly (Ratanarak Group's holding will be reduced from 25 per cent to around 21 per cent).

Understandably, Ratanarak Group intends to position itself as a key partner of BTMU.


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