Mitsubishi UFJ to Buy Ayudhya in Biggest Thai Bank Takeover

Mitsubishi UFJ Financial Group Inc. plans to buy Thailand’s Bank of Ayudhya Pcl for as much as 560 billion yen ($5.6 billion) in the largest banking takeover in the Southeast Asian nation.

Japan’s biggest bank will seek to buy as much as 75 percent of the Bangkok-based lender from shareholders including General Electric Co. through a tender offer, Mitsubishi UFJ said in a filing to the Tokyo Stock Exchange yesterday. The Japanese company plans to offer 39 baht a share for the Thai bank, or 5.4 percent more than yesterday’s closing price.

The purchase would give Mitsubishi UFJ a bigger foothold to expand retail and corporate banking in Southeast Asia’s second-biggest economy, which is forecast to expand more than three times faster than Japan’s next year. Japanese megabanks are buying assets abroad to counter the nation’s shrinking population and the lowest loan profitability in Asia.

“Bank of Ayudhya has a wide branch network and strong retail customer base that will give Mitsubishi UFJ immediate access to Thailand’s lucrative market,” said Jintana Mekintharanggur, who helps oversee about $200 million as director of equity investment at Manulife Asset Management Co. “Mitsubishi’s strong lending to large corporations, especially Japanese companies operating in Thailand, will support Ayudhya’s wholesale banking.”

Ratanarak Family

Assuming Mitsubishi UFJ buys the 75 percent stake for 560 billion yen, that would imply a multiple of 2 times book value at the end of last year, according to Mac Salman, an analyst at Jefferies Group LLC in Tokyo. That compares with average 1.7 for listed Thai lenders, data compiled by Bloomberg show.

Mitsubishi UFJ would be the first Japanese bank to gain control of an Asian lender, Salman wrote in a note yesterday. The plan is based on the Ratanarak family retaining 25 percent ownership, Mitsubishi UFJ said. GE will sell its 25 percent stake, according to the statement. The Japanese lender will work with the family to expand Bank of Ayudhya’s business.

Mitsubishi UFJ said it will seek approval from Thai authorities before carrying out the tender offer from early November to December. Thailand’s central bank received a request from the Japanese company to approve its plan to buy shares in Bank of Ayudhya, Deputy Governor Krirk Vanikkul told reporters today in Bangkok.

Ownership Restrictions

Rules in Thailand restrict foreign ownership of local banks at 49 percent. CIMB Group Holdings Bhd., Malaysia’s second-largest lender, and Singapore’s United Overseas Bank Ltd. are among firms that control Thai banks.

Mitsubishi UFJ and Bank of Ayudhya will consider merging the Japanese bank’s Bangkok office into the Thai lender to meet the rules, the statement showed. Mitsubishi UFJ was advised by Bank of America Corp. and GE was advised by Morgan Stanley.

Shares of Mitsubishi UFJ rose 0.8 percent to 644 yen at the close in Tokyo, outpacing a 0.2 percent gain in the benchmark Topix Index. The stock has climbed 40 percent this year. Bank of Ayudhya fell 1.4 percent to 36.5 baht in Bangkok, retreating from the highest since October 1997.

The purchase would be the biggest takeover in Asia by a Japanese bank, eclipsing Sumitomo Mitsui Financial Group Inc.’s plan to buy a stake in Indonesia’s PT Bank Tabungan Pensiunan Nasional for $1.5 billion, data compiled by Bloomberg show.

Rising Profit

Formed in 1945, Bank of Ayudhya makes retail and corporate loans and had 601 domestic branches at the end of last year, according to its annual report. Net income rose 58 percent to 14.6 billion baht ($472 million) in the year ended December as loans grew 17 percent, the report shows.

With a focus on consumer credit, the company known locally as Krungsri has the most profitable lending business of Thailand’s six biggest publicly traded banks. Its 4.2 percent net interest margin exceeds the 3.2 percent average among the six, according to data compiled by Bloomberg. Japan’s three largest banks have an average net interest margin of 0.93 percent, the smallest in Asia, the data show.

Economic growth in Thailand will accelerate to 5 percent next year from a projected 4.6 percent in 2013, according to median estimates of economists surveyed by Bloomberg. Japan’s expansion will slow to 1.5 percent in 2014 from an estimated 1.8 percent this year, a separate survey shows.

Mitsubishi UFJ has been investing elsewhere in Southeast Asia. The bank led by President Nobuyuki Hirano bought a stake in Vietnam Joint Stock Commercial Bank for Industry and Trade -- known as VietinBank -- this year for about $740 million.

The lender is also expanding in the U.S., where it owns about 22 percent of Morgan Stanley and has San Francisco-based UnionBanCal Corp. In April, Mitsubishi UFJ said it will buy $3.7 billion of U.S. real-estate loan assets from Deutsche Bank AG through UnionBanCal to boost commercial lending.

“Mitsubishi UFJ wants to turn Bank of Ayudhya into a platform for extending various businesses not only in Thailand but also its neighboring countries,” said Yoshinobu Yamada, a Tokyo-based analyst at Deutsche Bank AG. “This is going to be a very positive and meaningful deal.”

(Updates with relative value in the fifth paragraph.)
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