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This article first appeared in The Edge Financial Daily on May 22, 2018

KUALA LUMPUR: Kenanga Investment Bank Bhd (Kenanga IB) has received approval from Bank Negara Malaysia (BNM) to start talks with Inter-Pacific Securities Sdn Bhd (Interpac Securities) to buy its stockbroking business.

In a filing with Bursa Malaysia yesterday, Kenanga IB said BNM requires the negotiations to be completed within six months from May 16. It did not disclose the potential value of the proposed acquisition, except that it will be financed by shares of Kenanga IB and cash.

“We will make further announcements as and when there are material developments pertaining to the proposed acquisition,” it added.

Interpac Securities is an indirect subsidiary of Berjaya Capital Bhd, which in turn is part of Berjaya Corp Bhd. Established in 1972, Interpac Securities has five branches across Kuala Lumpur, Penang and Johor Baru, and a paid-up capital of RM250 million.

“Interpac Securities is a reputable and well-established independent stockbroking company, with a robust track record and strong retail focus. The potential acquisition will further strengthen Kenanga’s leading position in the retail broking space to become the top two largest stockbrokers in Malaysia by trading value, with a combined market share of over 10% and retail market share of about 25%,” said Kenanga IB group managing director Datuk Chay Wai Leong in a separate statement. “We are looking forward to a smooth and fruitful negotiation process, and aim to conclude within the next six months,” he added.

The proposed acquisition is not Kenanga IB’s first-ever acquisition. In 2012, it acquired ECM Libra Investment Bank Bhd for RM875.1 million, of which RM659.61 million was in cash and the rest in shares and loan stocks.

In that same year, Kenanga IB also acquired ING Funds Bhd, which catapulted the investment bank to where it is today.

As at March 30, 2018, Kenanga’s three largest shareholders were Cahya Mata Sarawak Bhd with a 25.38% stake, Tan Sri Tengku Noor Zakiah with 14.16% and Tokai Tokyo Financial Holdings Inc with 5.05%.

Kenanga IB saw its net profit surge more than eight times to RM15.44 million in the first quarter ended March 31, 2018 (1QFY18) from RM1.89 million a year ago, mainly due to bad debt recovery of RM12 million and higher net brokerage and management fee income generated in the current quarter under review. Quarterly revenue also increased 7.8% to RM182.33 million from RM169.13 million a year ago.

As at Dec 31, 2017, Kenanga IB had cash balances of RM1.35 billion with total assets worth RM6.49 billion, while total liabilities stood at RM5.6 billion.

The local financial industry has seen quite a few mergers and acquisitions in the past years, including the RHB Capital Bhd-OSK Investment Bank Bhd merger and CIMB Group Holdings Bhd’s acquisition of Royal Bank of Scotland Group plc’s Asian operations for RM849.4 million. RHB Capital completed the acquisition of OSK Investment Bank in November 2012, which made the group’s investment banking arm, RHB Investment Bank Bhd, the largest in the country in terms of assets.

In 2011, Singapore’s largest banking group United Overseas Bank Ltd (UOB) gained a foothold in the local stockbroking scene, when it acquired Sabah-based Innosabah Securities Bhd from Kretam Holdings Bhd. The purchase consideration made by the group’s stockbroking unit UOB-Kay Hian Holdings Ltd at RM56.68 million, included a RM15 million premium over its net assets.In 2014, Affin Holdings Bhd acquired the investment banking, asset management and futures dealing assets of HwangDBS (M) Bhd for RM1.36 billion.

Kenanga IB shares closed half a sen or 0.78% lower at 63.5 sen yesterday, bringing a market capitalisation of RM458.45 million.

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