Sime Bank takeover comes under spotlight

Sime Bank takeover comes under spotlight

By Nelson Graves

KUALA LUMPUR (Reuters): Financier Abdul Rashid Hussain adds to a growing empire with his takeover of ailing Sime Bank, but questions lingered yesterday over how he would pay and whether it would end up being a government rescue.

Abdul Rashid's namesake group, Rashid Hussain Bhd., announced late on Tuesday it had agreed to buy Sime Bank, owned by blue chip conglomerate Sime Darby Bhd., for US$220 million.

The deal would be Rashid Hussain's second big takeover in a year and catapult RHB Bank Bhd. from third into second ranking among Malaysian banks, behind Malayan Banking Bhd.

Rashid last year merged medium-sized Kwong Yik Bank with its DCB Bank to form RHB Bank.

The deal effectively saves Sime Darby, which announced a net loss of 676.2 million ringgit ($175 million) for the six months to end-1997, from having to inject at least 1.2 billion ringgit of fresh capital into Sime Bank to restore its health.

Analysts said Rashid appeared to have paid a premium. "Both the depositors of Sime Bank and the shareholders of Sime Darby should be able to sleep well now," Jupiter Securities said in an analysis of the deal.

"We generally feel this is good for Sime Darby," said a local banking analyst. "But Rashid is buying a mess."

The takeover also appears to mark an end to any possibility of a merger between RHB Bank and Bank of Commerce, owned by Commerce Asset-Holding Bhd. They had been in talks.

Rashid said it had signed a deal with Sime Darby and diversified KUB Malaysia Bhd. to buy all of Sime Bank's share capital for 852.24 million ringgit.

KUB, an investment holding company whose shareholders are largely members of Prime Minister Mahathir Mohamad's United Malays National Organization party, owns 30.01 percent of Sime Bank and 60.35 percent of Sime Darby.

Rashid said the purchase price was subject to adjustments, if any, arising from due diligence. With the takeover, Sime Bank will be merged with RHB Bank Bhd., a unit of RHB Capital Bhd., Rashid's banking services arm.

Rashid said the purchase price was based on Sime Bank's net tangible assets at the end of 1997 of 588.9 million ringgit, adjusted for surpluses from the disposal of several units.

It named Sime Merchant Bankers Bhd., SimeSecurities Holdings Sdn. Bhd., SimeFinance Bhd., Simeban Harta Sdn. Bhd., UMBC Insurans Sdn. Bhd. and Sime International Bank (L) Ltd, which it said will be sold "to certain parties" identified by the central bank.

"We are extremely negative on this deal," an analyst with a foreign brokerage said. "Rashid should not be paying anything." He said Sime Bank's book value at the end of 1997 did not take into account non-performing loans, which he estimated at 18 percent of the bank's portfolio.

Bank Negara said last week that Sime Bank would need 1.2 billion ringgit in new capital to raise its capital adequacy ratio (CAR) to the minimum 8 percent from 2.9 percent. Gan Kim Khoon, research manager for SocGen-Crosby, said Sime Bank might need closer to 1.5 billion ringgit as 8 percent was considered a minimum threshold.

But Jupiter Securities said the merged entity's capital adequacy ratio would be skewed by RHB Bank's CAR of 10.2 percent, and Rashid may need to inject about 800 million ringgit of capital.

Rashid said it would unveil details of the funding and recapitalisation of Sime Bank by the end of next week. There has been persistent speculation that the Employees Provident Fund (EPF), the national pension fund, will buy shares in Rashid Hussain, providing it with hard cash.

A foreign analyst said: "I think EPF has to come up with the money. Rashid Hussain does not have the money now. I think EPF has to come to the table."

Opposition leader Lim Kit Siang said on Tuesday before the deal was announced: "This is why I said that among the bailout operations are the bailouts of Sime Bank and KUB."

Several analysts said Rashid Hussain might win low-cost loan from a government bank.

"Rashid Hussain will be offered some kind of sweetener. They are paying a whopping premium," one said.