This article first appeared in The Edge Malaysia Weekly on April 3, 2023 - April 9, 2023

ARMED forces fund Lembaga Tabung Angkatan Tentera (LTAT) is in talks to sell a 5% block of its 33.2% stake in Affin Bank Bhd to an entity controlled by the Sarawak state government, sources familiar with the matter tell The Edge.

The Edge is given to understand that the sale of the 5% stake could take place as early as this week.

Sarawak Financial Secretary Datuk Seri Wan Lizozman Wan Omar did not reply to email questions and LTAT also declined to comment.

Although not etched in stone, the price tag for the block is said to be likely at the prevailing market price of about RM2 a share, or about RM227.35 million for the 113.69 million shares.

“There were talks between LTAT and the state, which started sometime last month. LTAT also spoke to some pension funds, and other financial institutions … but Sarawak was the most keen to take up the stake, so the placement should happen anytime soon,” a source says.

LTAT’s sale of the 5% block is understood to be tied to its proposed privatisation of Boustead Holdings Bhd.

The Boustead Holdings privatisation at 85.5 sen a share, or RM703.25 million for the 40.58% that LTAT does not own, was announced in early March. LTAT has since upped its shareholding in Boustead Holdings to 73.81%.

LTAT has a 33.2% stake in Affin Bank, while Boustead Holdings has a 20.9% shareholding in the banking outfit. If LTAT were to wholly own Boustead Holdings, its effective stake in Affin Bank would increase to 54.1%.

In placing out 5% of Affin Bank to the Sarawak state, LTAT is seeking to reduce its shareholding in Affin Bank to below 50% to avoid having to obtain Bank Negara Malaysia’s approval under Section 87 of the Financial Services Act 2013 (FSA).

Section 87(2) of the FSA says, “No person shall enter into an agreement or arrangement to acquire any interest in shares of a licensed person by which, if the agreement or arrangement is carried out, he would hold (together with any interest in shares of that licensed person which are already held by such person) an aggregate of more than 50% of the interest in shares of the licensed person, without obtaining the prior written approval of the Minister, on the recommendation of Bank [Negara].”

A second source when asked if Sarawak was looking at a larger stake than 5% replied that such a scenario was likely. On whether LTAT would be willing to sell more Affin shares to Sarawak, the source says, “It would depend on many factors … I know LTAT will sell if the price is right.”

It is not a secret that Sarawak has been looking to buy into a financial institution for some time now.

In an interview with The Edge in early March, LTAT CEO Datuk Ahmad Nazim Abd Rahman had spoken about the need to restructure loss-making Boustead Holdings. “The restructuring of Boustead group is the final key milestone in LTAT’s transformation. As a listed entity, it is costly and takes a lengthy process to go through the restructuring, value creation activities, M&A (mergers and acquisitions) or divestment. To accelerate the process, we have to do it as a private company.”

He had indicated that Boustead Holdings and LTAT could pare down their stakes in diversified businesses, which range from pharmaceuticals, banking and plantations to defence, property development and petrol pump operations.

Without a doubt, LTAT’s and Boustead’s jewel in the crown is Affin Bank, which has blossomed over the last few years.

The second smallest bank in the country, Affin Bank chalked up a record net profit of RM1.3 billion from RM3.3 billion in revenue for the financial year ended December 2022 (FY2022). A year earlier, the bank had registered a net profit of RM526.93 million on the back of RM2.24 billion in revenue.

In its outlook for 2023, Affin Bank says, “Affin group remains cautiously optimistic of its prospects for 2023 as the reopening of the economy following the end of the Covid pandemic has spurred domestic demand and resulted in an improvement in the local labour market. This is expected to remain the key driver for growth in 2023.”

Of the seven analysts who cover Affin Bank, four have “buy” or “outperform” calls while the remaining three have “neutral” and “hold” calls.

In a report released in early March, CGS-CIMB — which has an “add” call on Affin Bank — said, “We maintain our ‘add’ call on Affin Bank given its attractive valuation with FY2023F PER of 8.6 times and FY2023F PBV of only 0.4 times, while the stock is supported by a dividend yield of 4.7% for FY2023F.

“Potential rerating catalysts include one of the highest loan growth rates in the industry and our expectations for an increase in ROE (return on equity) in FY2023-FY2025F, which could lead to an expansion in its PER valuation.”

Affin Bank closed last Friday at RM2.01, which translates into a market capitalisation of RM4.57 billion.
 

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