Maybank (MBBM.KL), Malaysia’s largest lender by assets, is snapping up Singapore broker Kim Eng Holdings for US$1.4 billion ($1.8 billion), in a move to strengthen its grip on the regional stock broking industry and diversify the lender’s source of overseas revenue.

The acquisition comes as Southeast Asian markets are on a roll, with Thailand and Indonesia ranking as the best performing major markets in Asia last year, spurred by foreign fund inflows and robust economic growth.

 

“What Maybank wants to do is expand its stock broking operations, and it makes sense for it to acquire a company which provides immediate exposure,” Vincent Khoo, UOB Kay Hian’s head of research, said on Thursday.

 

Investment banking and stock broking are becoming increasingly important for Malaysian banks as stiffer domestic competition puts further pressure on net interest margins on its loans.

 

Two of the best performing Malaysian banks in 2010 were CIMB Group (CIMB.KL) and RHB Capital (RHBC.KL), which were top deal makers in terms of number and value respectively.

 

Maybank and Kim Eng shares both rose nearly 3% on  Wednesday before trading was suspended on Thursday. Shares in Kim Eng, valued at about US$1.3 billion, have risen more than 35% since mid-December, when reports emerged of an impending stake sale.

 

“This position will widen our investment banking scope and reach into (Southeast Asian) in line with our regional aspirations,” Maybank Chief Executive Abdul Wahid Omar told a news conference.

Maybank, which was previously linked with another regional brokerage OSK Holdings (OSKH.KL), said it has no plans of further acquisitions in this business.

 

Maybank has offered to buy a 44.6% stake in Kim Eng from a unit of Taiwan’s Yuanta Financial Holdings (2885.TW) and the family that owns the Singapore broker for $3.10 per share, a premium of about 15% to Wednesday’s closing price.

 

The purchase of Kim Eng might also entail an additional cost of 500 million ringgit ($210.8 million) if Maybank is required to undertake general offers for Kim Eng’s subsidiaries in the region.

 

Shares in Thailand’s Kim Eng Securities Pcl (KEST.BK) surged as much as 11.9% on Maybank’s planned acquisition of its Singapore parent.

Maybank’s Wahid said the funding for the deal would likely be through a mix of borrowings and internally generated funds.  The bank will not raise equity from shareholders . 

 

Japan’s Mitsubishi UFJ Securities owns about 29% of Kim Eng and it was not clear whether it will sell the shares or not.

 

Maybank’s Wahid said the bank has not yet had discussions with the Japanese firm on the transaction.

 

The Maybank-Kim Eng deal would be the biggest one in the brokerage industry in Singapore since 2005, when Malaysia’s CIMB bought the brokerage unit of G.K. Goh Holdings (GKHS.SI) for US$146 million.

 

The deal, jointly advised by Nomura and Maybank Investment Bank, is expected to broaden Maybank’s sources of overseas revenue following its entry into Pakistan, Vietnam and Indonesia to counter the impact of slowing growth in Malaysia’s  increasingly crowded financial market.

 

“The Kim Eng acquisition would add about 5% to Maybank’s bottomline, but it will depend on how the deal is funded. If by debt, the first year’s contribution will be zero,” HwangDBS Vickers banking analyst Lim Sue Lin said.

 

Besides Singapore, Kim Eng also has a large operation in  Thailand, where it is the biggest foreign broker in terms of  market share and is also active in Philippines and Malaysia.

 

In Singapore, Kim Eng competes with the brokerage units of Singapore’s three local banks as well as Phillip Securities, Citigroup, OSK unit DMG & Partners and CIMB for the retail business.