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EONCap gets thumbs down from analysts
Written by Ellina Badri
Thursday, 04 February 2010 11:39
KUALA LUMPUR: EON Capital Bhd (EONCap) was downgraded by analysts yesterday, following the banking groupâs decision to reject a RM4.92 billion all cash offer from Hong Leong Bank Bhd (HLBB) for a takeover of its assets and liabilities.
Analysts said although EONCap could be holding out for a higher takeover offer price, the chances of this materialising were slim, leaving a limited upside to the stockâs target price.
Investors also reacted negatively, making it the top loser on the bourse. The stock had gained some ground since the proposed deal was first announced on Dec 17, but took a nosedive and fell to its lowest since Dec 30, shedding 23 sen or 3.26% from Tuesdayâs close to RM6.83 yesterday with 1.33 million shares done.
It had risen 7.29% since Dec 17 up to Feb 2.
HLBBâs stock, however, gained 2.2% to RM8.38, with 115,200 shares traded.
OSK Research downgraded EONCapâs fair value to RM6.60 following the lapse of HLBBâs offer and the absence of credible bids, but maintained its neutral call on the stock, while Maybank Investment Bank Research downgraded its buy call to a hold but kept its RM7.20 target price.
AmResearch also downgraded the stock, to a sell from hold, with a revised fair value of RM5.50 a share.
HwangDBS Vickers Research, however, maintained its hold and RM7.10 target price, given that HLBBâs bid could still go through if shareholders requisitioned an EGM to vote against the boardâs decision not to table the offer to shareholders, as speculated in the market.
âAssuming bets are still on, EONCap could still trade close to HLBBâs proposed offer price of RM7.10 if shareholders push for an EGM. If the shareholders fail, EONCapâs share price could correct to its fundamental value of RM6.30, in our opinion,â the research house said.
To recap, HLBB had made a RM4.92 billion, all cash, offer to take over EONCapâs assets and liabilities, in a deal that could turned them into the countryâs fourth largest bank, in terms of assets.
It is understood that EONCapâs major shareholders, comprising Rin Kin Mei, the family of Tan Sri Tiong Hiew Khing, the Employees Provident Fund and Khazanah Nasional Bhd, favoured a sale, but the bankâs largest shareholder, Primus Pacific Partners Ltd, which paid RM9.55 a share for its 20.2% stake in 2008, was speculated to be unwilling to sell its stake at HLBBâs RM7.10 per share offer price.
On Tuesday, however, EONCap said its board of directors had resolved the offer was not in its and its shareholders interests, and hence would not table the offer for consideration and approval by shareholders at a general meeting.
Before announcing its decision yesterday, EONCap had received a five-day extension to re-evaluate HLBBâs offer, which it deemed as âundervaluedâ.
Prior to the lapse of the initial offer period, it emerged that property group Mulpha International Bhd had asked Bank Negara Malaysia for approval to start talks with EONCap, while EONCap also sought the central bankâs nod to negotiate with other bidders for a stake sale. Both of these are still pending.
In its note yesterday, OSK Research said while EONCapâs move to get BNMâs approval to talk to other parties, including non-financial institutions, could signify it was actively considering higher bids, chances of a better offer were âslimâ.
It said this was considering that no financial institution had shown interest in the bank to-date, while BNM would likely prefer a financial institution to acquire EONCap.
It also said potential foreign financial institutions eyeing a licence in Malaysia could no longer be willing to overpay for an existing banking licence here, given the small and saturated local banking landscape, and instead consider the cheaper option of applying for new banking licences open to foreigners under phase three of the Financial Sector Master Plan.
âAlthough EONCapâs share price may trade higher over the immediate term on more merger and acquisition driven news, we think that such potential acquisitions, unlike HLBBâs offer, are unlikely to involve a 100% stake sale via an asset and liability acquisition mode.
âHence, the share price will eventually fall back to reflect its immediate-to-medium term fair value as the group is still in the early stages of its strategic transformation,â OSK Research said.
Meanwhile, Maybank Investment Bank said it doubted BNM would agree to Mulpha becoming a major shareholder in the bank, as it brought âno added valueâ.
âHLBBâs reactionary statement, meanwhile, suggests that it is unlikely to raise its offer price, which valued EONCap at 1.4 times 2009âs book,â it said.
In a short statement in response to EONCapâs announcement on Tuesday, HLBB had said its offer had lapsed, and that it was disappointed at EONCapâs decision as it had made âa fair and attractive offerâ.
In its report, AmResearch said it did not expect another offer for EONCap to emerge soon that would involve an assets and liabilities takeover scenario, adding this would make minority shareholders unable to realise a higher value in the short term.
âWill there be another offer for EONCap? Even if it were so, we would expect any new offer to lead to a mere change in shareholders.
It also said the emergence of a foreign buyer would likely also only involve a change in shareholding, due to the 30% foreign ownership limit in domestic banks.
This article appeared in The Edge Financial Daily, February 4, 2010.
EONCap can stand alone
Written by Darlene Liew
Thursday, 04 February 2010 11:37
KUALA LUMPUR: EON Capital Bhd (EONCap), which owns EON Bank, has the capability to stand alone due to its robust performance, boosted by its transformation strategy, said group CEO Michael Lor.
âWhether thereâs merger offer on the table or not, itâs business as usual for us (the management),â he told reporters after the launch of the âpower of loveâ bancassurance campaign yesterday.
âAs for now, Iâm not aware if there is any third-party offer to acquire the groupâs assets and liabilities. If there is an offer coming, the board of directors will make an appropriate announcement on that,â he added.
On Tuesday, EONCap rejected Hong Leong Bank Bhdâs offer to acquire EONCapâs entire assets and liabilities for RM4.92 billion. It said the offer was not in the interests of the company and its shareholders.
Lor said EONCapâs transformation programme, which started in early 2008 and was completed at the end of last year, had positioned the company for strong and sustained growth as an independent company, in which earnings had improved in terms of net income, return on assets as well as return on equity.
âWe believe that weâre only at the start of the transformation programme even though it has been completed. We believe last year was the first 10 metres of a 100-metre race and with our torn spiked shoes, we will continue running the 90 metres,â he said.
âWe think the 90 metres ahead will be exciting for the organisations and both the management team and myself are extremely geared up for it,â he added.
The transformation programme was aimed at placing the group in a position to reach out to a larger market for its customer base.
âUnder this strategy, we brought on board people with capabilities in marketing, product development, sales and distributions as well as alternative channels,â he said.
Lor said that under the programme a total of 250 people were brought in for the direct-selling team while all of EON Bankâs 140 branches were equipped with three to four customer relationship officers to cater to its customers.
âWe saw a three-digit growth in Internet banking last year and we are expecting a similar growth for our alternative channels,â he added.
EONCap recorded significant growth in all its major products in 2009. It chalked up 40% growth for mortgage, 20% for credit card business and 3% for hire purchase.
âToday, we are the third largest (fifth previously) hire purchase financier in Malaysia,â Lor said.
He said that the bankâs non-performing loan level had improved to about 2% from 5% in 2008, adding that its loan-loss coverage jumped up to 86% from 56% recorded two years ago.
This article appeared in The Edge Financial Daily, February 4, 2010.
HLBB, EONCap minorities deserve some enlightenment
Written by Thomas Soon
Friday, 05 February 2010 11:38
Just as when Tan Sri Quek Leng Chan-controlled Hong Leong Bank Bhdâs (HLBB) quest for EON Bank group appears to have ended as abruptly as when it was first proposed, EON Capital Bhd (EONCap) major shareholder and director Rin Kei Mei has revived the possibility of a merger.
As far as Quek was concerned, HLBBâs offer of RM7.10 per share for EONCapâs assets and liabilities had lapsed. There is no question of the RM4.92 billion cash offer being tabled to EONCap shareholders, until and unless HLBB comes back with a new offer.
Given Rinâs decisive move to revive the proposed merger that could have formed the countryâs fourth-largest banking group, it would appear an offer, revised or otherwise, may yet again be on the table. This is where HLBB has to enlighten all sides. Some transparency here would not hurt.
EONCap board of directorsâ rejection of HLBBâs RM7.10 offer on Tuesday did not come as a surprise as it had earlier said the proposal âsignificantly undervaluedâ the EON banking group. The board made the decision after it had asked for an extension of the offer period until Tuesday to deliberate on the matter.
EONCap chairman Tan Sri Syed Anwar Jamalullail reiterated that the âundervalued acquisition bid does not account for EONCapâs significant recent and projected growth, underpinned by the companyâs recently completed transformation programmeâ.
Expressing disappointment over the rejection, HLBB director and Hong Leong Financial Group Bhd president Raymond Choong had said it âwas hoping that the EON Capital board would table our offer to shareholders for their decisionâ. No other information was forthcoming.
Despite both partiesâ boards having the approval of Bank Negara Malaysia (BNM) to proceed with negotiations on the proposed takeover and given how it had ended, it would now appear it was a more or less hostile bid from Quek in the first place. According to reports, he is not known to overpay for his acquisitions.
In the latest development, Rin, who holds a 15.4% stake in EONCap, yesterday called for the appointment of eight additional directors to its board. It is unclear if other major shareholders are also keen to see the original offer being pursued.
Again, the only issue is HLBBâs lapsed offer, which means HLBB would have to re-extend its offer, revised or otherwise.
As well documented, EONCapâs major shareholder and Hong Kong-based private equity fund Primus Pacific Partners Ltd, which bought its 20.2% stake at RM9.55 per share, wants a higher price.
HLBB was earlier in talks with âcertain shareholdersâ of EONCap for the potential acquisition of the assets and liabilities, including equity interests, in EONCap.
As it turned out, the âcertain shareholdersâ definitively included Rin Kei Mei and Tan Sri Tiong Hiew King, who own a combined stake of 32.57% in EONCap.
The other major shareholders include Khazanah Nasional Bhd, with a 10% stake and the Employees Provident Fund with 11.91%.
Collectively, the four parties hold 54.48% of EONCap. Their combined decisions will be key to any new developments in the HLBB-EONCap saga. One key pertinent question at this point â is HLBB still in talks with the âcertain shareholdersâ, including Rin? If nothing else, this has to be answered, even from a regulatory point of view.
It would appear that HLBB would not have extended its offer if it hadnât at least secured the go-ahead of the âcertain shareholdersâ.
The question now â is there still an âunderstandingâ between them and HLBB in the latterâs continuing pursuit, if any, of the EON banking group?
Rin has every right to call for an EGM to seek the appointment of additional directors to EONCapâs board, but had he acted, expressed or implied, with the âunderstandingâ that HLBB will revisit its bid? Are the other major shareholders collaborating with Rin or even HLBB? Minority shareholders do deserve answers to some questions.
This article appeared in The Edge Financial Daily, February 5, 2010.
Saturday February 6, 2010 New EON Cap directors hit a snag in takeover deal? By ELAINE ANG
PETALING JAYA: The appointment of eight new directors to EON Capital Bhdâs (EON Cap) board is still subject to Bank Negara approval and may possibly complicate matters in the EON Cap and Hong Leong Bank Bhd (HLB) takeover deal, industry observers said.
âThe central bankâs approval is required and it will take time to audit the proposed eight new members before the EGM,â an industry observer said.
However, an analyst with a local stockbroking firm points out that the process may be sped up as most of the directors proposed are involved, or are directors, in insurance companies and thus will have already been approved by Bank Negara, which needs to approve appointments to insurance companies as well.
âSo these individuals have already been through Bank Negaraâs vetting process.
âLogically speaking, if they are allowed to be directors in insurance companies, then it ought not to be any different from being a director in a banking institution,â the analyst said.
Major shareholder Rin Kei Mei, who owns 15.5% of EON Cap, had called for an EGM on Feb 22 to appoint the eight new directors to the current board of the financial group.
The eight new proposed directors are Tengku Ahmad Faisal Tengku Ibrahim (ING Insurance Bhd director), Tengku Azman Ibni Sultan Abu Bakar (Syarikat Takaful Malaysia Bhd director), Haron Siraj (Jerneh Asia Bhd and Scomi Group Bhd director), Tan Leh Kiah (commissioner of the Securities Commission), Zaha Rina Zahari (MAA Holdings Bhd director), Wee Hoe Soon @ Gooi Hoe Soon (EON Bank Bhd director), Nicholas John Lough @ Sharif Lough bin Abdullah (MAAKL Mutual Bhd director) and Ahmad Riza bin Basir (Jerneh Asia Bhd and Manulife Holdings Bhd director).
The appointments, if approved at the EGM, will be of immediate effect and will increase the current EON Cap board size to 15 members.
Under section 145 of the Companies Act 1965, shareholders who hold at least 10% of voting rights in the company have the power to convene an EGM to appoint new directors to the board.
The meeting shall be called by notice in writing of not less than 14 days or longer as provided in a companyâs articles of association.
The notice of the EON Cap EGM was filed to the stock exchange yesterday, thus providing sufficient notice to shareholders.
On why Rin had requisitioned an EGM for the appointment of the eight directors instead of for HLBâs offer to be tabled to shareholders, a financial adviser said: âIf you call an EGM to dispose of assets, you need to prepare a circular that sets out details of the transaction, appoint independent financial advisers for valuation purposes and all of these can only be done with the co-operation of the board. You canât supplant the board.â
Analysts believe that if the EGM is successful, the new line-up of EON Capâs directors could reduce Primus Pacific Partners (HK) Ltdâs influence on the board.
OSK is not surprised by the requisition for EGM.
âWe continue to believe that the non-strategic shareholders, especially Rin and Tan Sri Tiong Hiew Khing (17.1% stake) remain committed to dispose their respective stakes, even at prices at the lower end of the recently transacted domestic banking merger and acquisition valuation range given their significantly lower entry cost,â it said in a research note.
Analysts believe the deal may be pushed through if Rin is able to convince both Khazanah Nasional Bhd (10% stake) and the Employees Provident Fund (17%) to support HLBâs proposed acquisition.
An analyst with a bank-backed research house noted that any delay in the deal would provide Primus with a chance to source for other bidders for EON Cap.
So far, only property developer Mulpha International Bhd, which wants to expand into financial services, has submitted an application to Bank Negara for permission to start talks with EON Cap.
Approval from the central bank is still pending.
âThere is a lot of resistance from Primus to sell to HLB because of the low price. I think Primus will still continue to look for other bidders.
âIt may even seek legal recourse if there are any technicalities in the proposed directors appointment and calling for EGM that need to be addressed,â he said.
In the case of Ho Hup Construction Co Bhd, a court order was obtained by Ho Hupâs controlling shareholder to stop its EGM as the notice to remove the majority of the current board of directors and to replace them with six nominees was inadequate.
Saturday February 6, 2010
EON Cap-HLB saga continues
By YVONNE TAN
WITH Rin Kei Meiâs call for an EGM to appoint new directors to the EON Capital Bhd (EON Cap) board, the scene in the EON Cap-Hong Leong Bank Bhd (HLB) saga has changed.
A bigger board tilted towards Rin could entice HLB to make a new offer, observers say. The big question though is â will the new offer be higher than its earlier cash offer of RM4.92bil or RM7.10 per share for all of EON Capâs assets and liabilities?
âThey can certainly afford to come up with a higher offer if they wanted to as they started low,â remarks an analyst.
To recap, the current EON Cap board rejected HLBâs RM4.92bil cash offer to buy its entire assets and liabilities on Tuesday, saying that the offer âundervaluedâ the company.
It also said that it would not table the offer for consideration and approval by shareholders, therefore lapsing the offer.
EON Capâs recent transformation programme has placed the group at much higher value than what HLB had offered, the financial group says.
The move by Rin, who has a 15.5% stake in EON Cap, to call for an EGM is seen as the shareholderâs way of sealing a deal with HLB, despite the boardâs rejection, as he is a willing seller, having bought EON Cap shares at a relatively low cost price.
Rinâs group will have a majority of directors if the appointments are approved, paving the way for a new offer from HLB, analysts says.
Whether or not the new offer, if it materialises will be a higher offer, itâs anyoneâs guess. âThe situation is fluid right now, nothing is certain,â says an observer.
Sources have said however that HLB is not prepared to offer a higher price largely due to the fact that there is no one single firm offer for EON Cap other than HLB so far, despite the former indicating that they have been approached by other interested parties.
For now, except for Mulpha International Bhd, which has yet to hear from Bank Negara since it sought its consent to start talks to acquire a stake in the bank, no other suitor has come forth.
In the meantime, what could possibly lead to a delay in the EGM is if the central bankâs approval for the appointment of the eight new directors take longer than expected.
Bank Negaraâs approval is required and an audit process would have to be done on the eight members before the proposed EGM.
Having said that, a delay would help Primus Pacific Partners (HK) to buy some valuable time to look for other suitors.
In the interim, other potential bidders could also put in their bids to take over the financial group.
Primus, the single largest shareholder in EON Cap with a 20.2% stake, is largely perceived as the party most opposed to HLBâs earlier offer as it had purchased its shares at RM9.55 per share. In short, it would have lost, on the surface, more than RM300mil if it had accepted HLBâs earlier offer of RM7.10, based on the number of shares it owns.
Rin has a 15.4% stake in EON Cap while the other major shareholders â namely, Tan Sri Tiong Hiew King, has a 17.1% stake, Khazanah Nasional Bhd, a 10% stake and the Employees Provident Fund, a 12% stake.
All are understood to favour the earlier proposal by HLB.
Although HLBâs offer is lower than general expectations, it is believed that the price is still higher than Rin and Tiong groupsâ cost of around RM2 per share, and Khazanah and EPFâs cost of below RM6 per share.
At RM4.92bil, HLBâs offer valued EON Cap at 1.4 times price to book value, which falls at the lower spectrum of the valuation range of previous local merger and acquisition deals. Analysts have said that 1.6 times price to book value could be a âfairer priceâ.
Based on the latest quarterly results where EON Capâs shareholders funds amounted to RM3.5bil, a valuation of 1.6 times book would translate to about RM8 per share.
Meanwhile, analysts say, any possible fresh offer should provide shareholders with the option of either cash, or shares or a combination of both.
âThis way, those who choose to swap their EON Cap shares (with that of the offerorâs) will get a chance to participate in an enlarged banking entity, assuming the offer comes from a banking group,â one analyst says.
Hong Leong Bank unable to consider maintaining EON Cap offer
Written by Joseph Chin
Monday, 08 February 2010 19:52
KUALA LUMPUR: HONG LEONG BANK BHD [] says it is unable to consider a request from EON CAPITAL BHD []'s dissenting shareholders Kualapura (M) Sdn Bhd and Lintang Emas Sdn Bhd to maintain the offer earlier made to EON Cap board.
HL Bank said on Monday, Feb 8 it was unable to consider their request as EON Cap board had rejected the offer and HL Bank had not been informed of any change in the board of EON Capâs position.
It said that it had received a letter dated Feb 5 from Kualapura and Lintang Emas that they had called for an EGM to be held on Feb 22 for EON Cap shareholders to deliberate on the appointment of eight new directors to EON Cap board.
"In light of the above, Kualapura and Lintang Emas had requested for HL Bank to maintain the offer to EON Cap for a period of 14 days after the date of the EGM," it said.
