Dec 22, 2009

EON Capital Rises After Hong Leong Seeks Bank Stake

eoncap EON Capital Bhd., one of Malaysia’s smallest banks, rose to a two-year high after billionaire Quek Leng Chan’sHong Leong Bank Bhd. said it plans to start talks to buy assets and liabilities including equity interests in its rival.

Shares of EON jumped 4.6 percent to close at 6.88 ringgit in Kuala Lumpur trading, the highest level since Dec. 6, 2007. It earlier climbed as much as 7.9 percent to 7.10 ringgit. Hong Leong Bank, the sixth-biggest Malaysian lender, slid 5.2 percent to 7.87 ringgit, the most since Oct. 28, 2008.

“Expect a hard bargain by all,” Wong Chew Hann, an analyst at Maybank Investment Bank Bhd. said in a report today. “The offer price has to be enticing” for the acquisition to be successful, said Wong, who has a “buy” rating on EON Capital with an unchanged share price estimate of 7.20 ringgit.

An acquisition and merger with EON would create Malaysia’s fourth largest banking group, surpassing state-controlled RHB Capital Bhd., said HWANGDBS Vickers Research Sdn. analyst Lim Sue Lin in a report today, maintaining a “buy” rating on the stock.

EON shareholders R.H. Development Corp., Kualapura (M) Sdn Bhd. and Lintang Emas Sdn Bhd. have received approval from Bank Negara Malaysia, the country’s central bank, to discuss with Hong Leong the divestment of their stakes, EON said in a filing to the Malaysian stock exchange after trading closed today.

Businessman Rin Kei Mei indirectly holds 15.4 percent of Eon’s shares through Kualapura and Lintang Emas, the Star newspaper said in a report today. The family of Tiong Hiew King have 16.3 percent through R.H Development, the daily said.

Money to Spend

Quek’s interest in EON, with assets of 43.4 billion ringgit ($12.6 billion), would give Hong Leong Bank “greater financial muscle to meet its aspirations as a regional player,” Lim said.

Hong Leong has been on an expansion trail. It formed a consumer-finance joint venture with Bank of Chengdu Co. and a separate cooperation agreement with China Development Bank Corp. in November. It has been granted a banking license in Vietnam and is reportedly among bidders for a stake in Siam City bank Pcl, Thailand’s seventh-biggest lender by assets.

It has been approached regarding acquisitions because companies know Hong Leong Bank has the necessary capital, Group Managing Director Yvonne Chia was quoted as saying on Aug. 19. Last month, the Edge weekly newspaper said Quek’s Guoco Group Ltd. might take over Hong Kong’s Bank of East Asia.

Hong Leong’s Network

Hong Leong’s branch network in Malaysia would increase by 70 percent from the current 199, should a merger with EON go through, said Maybank’s Wong.

“Competition from the forthcoming liberalization of the domestic banking sector could be the main motivating factor” in Hong Leong’s pursuit of EON, Wong added.

Any tie-up with EON might spark a second round of banking mergers, said Keith Wee, an analyst at OSK Research Sdn. in report today. The potential acquisition price may be as much as 7.90 ringgit a share, said Wee, assuming a 15 to 20 percent premium to his fair value for the stock.

Rin and the family of Tiong Hiew King denied a Reuters report they are willing to sell their stakes in Malaysia’s EON Capital Bhd. to Hong Leong Bank Bhd. at 8.20 ringgit a share.

EON’s owners are not likely sell at the stock’s current level, which is 28 percent below the 9.55 ringgit per share which biggest shareholder Primus Pacific Partners Ltd. paid for its 20 percent stake in 2008, Maybank said in its report.

EON’s share price forecast was raised to 7.35 ringgit from 6.30 ringgit at HWANGDBS, after taking a potential merger and acquisition premium into account, maintaining a “buy” rating on the stock.

To contact the reporters on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net; Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

Last Updated: December 21, 2009 07:17 EST

source : bloomberg