Source: Bloomberg

May 6 (Bloomberg) — Malayan Banking Bhd., Malaysia’s biggest bank, fell to a four-year low in Kuala Lumpur trading on concerns it’s paying too much for a non-controlling stake in Pakistan’s MCB Bank Ltd. and the acquisition may hurt dividends.

The Kuala Lumpur-based company yesterday agreed to buy 20 percent of MCB for as much as 60.3 billion rupees ($914 million). Shares of Maybank, as the bank is known, fell 3.8 percent to 7.70 ringgit at the close, the lowest since Jan. 6, 2004.

The purchase of MCB may prompt the Malaysian bank to raise more capital, which may dilute earnings per share. The acquisition is the third overseas purchase for Maybank this year, bringing the spending on investments abroad to as much as $3.8 billion in 2008.

“We view this acquisition as expensive given imminent macroeconomic headwinds in Pakistan and a lack of immediate synergy between” the banks, Julian Chua, an analyst at Citigroup Inc., who has a “sell” rating on the stock, wrote in a report today.

Citigroup, UBS AG and Macquarie Securities Ltd. cut their 12- month estimates for the stock price after the acquisition announcement yesterday. Citigroup cut its price target to 7.60 ringgit from 8.38 ringgit, UBS lowered it to 9.80 ringgit from 10.70, and Macquarie to 7.30 ringgit from 9.10 ringgit.

‘High Premium’

“The high premium paid and the ensuing potential need for a capital raising will weigh on the share price,” Chin Seng Tay, an analyst at Macquarie, wrote in a report today. ”With the risk we see of dividends being sacrificed to rebuild its eroded capital base, our dividend forecast is at risk.”

Maybank said yesterday it will decide next month how much capital it will raise this year and whether it will keep its policy of paying 60 percent of its profit as dividend.

“What puzzles a lot of people is actually why Maybank only became so aggressive now,” said Scott Lim, who helps manage $398 million as chief investment officer at CMS Dresdner Asset Management Sdn. in Kuala Lumpur. The deal “also means that investors can look forward to a lower dividend from Maybank. If you can buy Public Bank Bhd. at a lower valuation and get a very decent dividend yield, why should you own Maybank now?”

Maybank will initially buy 15 percent of Pakistan’s biggest bank by value for 44.3 billion rupees, or 470 rupees a share. The price is an 11 percent premium to MCB’s May 2 closing price. The bank also has the option to buy an additional 5 percent at as much as 510 rupees a share, it said.

Valuation

The bank is buying the MCB stake at 5.1 times book value, twice the average 2.2 times for Pakistan banks, data compiled by Bloomberg shows. The price is 15 times the Karachi-based bank’s earnings in 2008, Maybank said. The estimated price-earnings ratio for the Karachi Stock Exchange KSE100 Index is 16.2 times, Bloomberg data shows.

Fitch Ratings last month put the Malaysian bank on rating watch on concerns that it would have a “significant negative impact on its capital position.”

Maybank is expanding overseas to tap growth in less-developed economies. Malaysia’s economic expansion is set to slow to as little as 5 percent this year from 6.3 percent in 2007. That compares with Pakistan, with a population more than six times that of Malaysia’s, which forecasts its economy will expand 6 percent this year.

 E-mail this article to a friend

Tags: investment, Malayan Banking, Malaysia, Maybank, MCB, Shares