CIMB Seen Pursuing PNB for Asian Banking Growth: Real M&A

CIMB Group Holdings Bhd. may be able to revive its attempted entry into Asia’s fastest-growing banking market by targeting Philippine National Bank.

Malaysia’s second-largest lender by assets scrapped a takeover of Manila-based Bank of Commerce in June after disagreeing on terms with the sellers. With a market value of $18 billion, CIMB said last month it’s still seeking assets in the Philippines, where bank profits grew faster in the past five years than anywhere else in Asia, according to data compiled by Bloomberg.

PNB, the fourth-largest bank in the Philippines based on its $2 billion market value, is the most likely target after its own merger talks with a local rival failed last year, said Wealth Securities Inc. Government-controlled United Coconut Planters Bank, which posted record profit in 2012, may also appeal to CIMB as it attempts to fill the last major hole in its Southeast Asian network, according to Malayan Banking Bhd.

In the Philippines, “the banking industry is in its infancy, so the potential is quite big,” Charles Ang, an analyst at COL Financial Group Inc. in Pasig City, the Philippines, said in a phone interview. “Penetration of banking services is still very low compared to other regional countries. There’s a lot of room for growth.”

PNB rose as much as 5 percent before closing up 3.8 percent at 83.05 pesos in Manila. CIMB advanced 0.3 percent to 7.59 ringgit at 3:47 p.m. in Kuala Lumpur.

Borneo Roots

From its 1924 roots as a financier to businesses on the island of Borneo, CIMB has completed 23 takeovers worth a combined $4.3 billion in the past decade, data compiled by Bloomberg show. The Kuala Lumpur-based bank’s network, which stretches from the U.S. to Australia, now includes 13 Asian nations, according to its website.

In June, CIMB dropped its plans to buy 60 percent -- the maximum permitted for overseas banks under Philippine law -- of Bank of Commerce from San Miguel Corp. and others for about $280 million. “Land issues” undermined the deal, San Miguel President Ramon Ang said at the time.

CIMB Chief Executive Officer Nazir Razak, brother of Malaysian Premier Najib Razak, said three weeks ago he still wants a business in the Philippines.

“It’s the last major economy in the region in which they do not yet have a presence,” Matthew Smith, an analyst at Macquarie Group Ltd. in Singapore, said by e-mail. “The Philippines is really the missing piece.”

Josandi Thor, a representative for CIMB in Kuala Lumpur, had no comment and said CEO Nazir was traveling.

Growth Prospects

The $250 billion economy in the Philippines expanded 7.5 percent in the second quarter, equaling China as Asia’s fastest growing. In the past five years, banks in the Philippines valued at more than $1 billion notched up average annual earnings-per-share growth of 35 percent, according to data compiled by Bloomberg. That beat the average in other Asian countries.

Lending by Philippine banks will jump 20 percent this year, 16 percent in 2014 and 15 percent the following year as rural branches tap population growth outside cities, Gilbert Lopez, a Macquarie analyst, wrote in an Aug. 27 report. Relative to the size of the economy, no other country in Asia has fewer mortgage holders, according to Lopez. Allied with economic expansion, that’s an indicator of the market’s growth prospects, he wrote.

Profit Jump

PNB, which is based in Pasay City, the Philippines, has about 650 branches nationwide. Its net income will jump 35 percent from 2012 to $156 million in 2014, according to analysts’ estimates compiled by Bloomberg.

“They’re the best target,” ND Fernandez, an Pasig City-based analyst at Wealth Securities, said in a phone interview. “That would give an acquirer a really strong foothold in the Philippine banking market.”

Merger talks between PNB, which is backed by billionaire Lucio Tan, and Bank of the Philippine Islands, the country’s largest lender by market value, collapsed in December. PNB in February merged with Allied Banking Corp., another bank in which Tan was invested.

“The sign is still on that it’s for sale,” Katherine Tan, an analyst at Maybank in Makati City, the Philippines, said in a phone interview. In an Aug. 27 report, she said PNB was a “prime acquisition target” and “ripe for the picking” after a stock price decline.

Shares of PNB have fallen 31 percent as of yesterday since reaching a 13-year high on May 6, leaving the bank trading at just 1.1 times book value. That’s lower than all its publicly traded local peers, which are valued at an average multiple of 1.8, according to data compiled by Bloomberg.

‘Deserved Premium’

According to Raul P. Ruiz, an analyst at RCBC Securities Inc., PNB owner Tan has indicated he’d only sell the bank for 1.8 to 2 times its book value.

“A premium is deserved because CIMB’s position in the Philippines would right away be very strong once it buys PNB,” Ruiz, who is based in Makati City, said in a phone interview.

PNB President and CEO Omar Mier said the bank is not in talks regarding a sale.

“Our strategy is to improve the bank’s profitability and strengthen its balance sheet in the next four years,” he said in a text message. “We have no plans of merging the bank with any other bank in the next four years.”

United Coconut

PNB may be too large for CIMB, Ruta Cereskeviciute, a London-based senior economist at IHS Global Insight’s banking risk service, said in an e-mail. The collapsed Bank of Commerce purchase also shows CIMB is prepared to walk away from deals, said Macquarie analyst Smith.

United Coconut Planters Bank, a 50-year-old commercial bank that still serves the coconut industry, is an alternative target for CIMB, said Tan at Maybank. Known as UCPB, the bank has less than half the assets of PNB. The government would prefer a commercial owner to run UCPB, said Fernandez at Wealth Securities.

The government is weighing the sale of a stake in UCPB, the bank’s president and CEO, Jeronimo Kilayko, said in July. With 188 branches at the end of 2012, the bank may be valued at more than 20 billion pesos ($459 million), he said.

Kilayko didn’t reply to an e-mail seeking comment.

Makati City-based UCPB was seized by the government in 1986 on suspicion its shares formed part of the ill-gotten wealth of former dictator Ferdinand Marcos and his associates. Net income in 2012 climbed 28 percent to a record 3.92 billion pesos, according to UCPB’s annual report.

All the same, CIMB may not have a choice of targets if it pursues its Philippine ambitions, said Ruiz at RCBC Securities.

PNB is “the only bank that’s openly for sale,” he said. It’s “a good choice.”