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Biggest M&A deals of 2006
Banks in Asia Pacific continue to avidly pursue consolidation
following the high in M&A activity in 2005. Where is the action
focused and who are the heavy hitters in the headlines?
By Benny Zhang
D
eal frenzy continues
to seize the Asia Pacific banking sector,
with the total value of
mergers and acquisitions (M&A) between depository
institutions, credit institutions and
bank holding companies topping
$31.8 billion in 2006. Of the past
five years, this has been the second
busiest, surpassed only by 2005
– when the total value was $49.3
billion, having been bolstered by
the $27-billion mega-deal to create
Asia’s largest lender, Mitsubishi UFJ
Financial Holding.
Excluding deals in Japan, the total
banking M&A in Asia Pacific in 2006
has actually soared 96.1 percent from
the previous year to $30 billion and
tripled the volume of 2002, mainly
driven by intensified domestic market
consolidation and increasingly capitalrich banking institutions snapping up
stakes in the region.
Picking up of inter-and intra-regional investments
Despite ongoing developments and
liberalisation in Asia Pacific, the level
of sophistication in each country’s
banking sector remains varied. Banks
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in less-developed financial systems in
the region will be seeking additional
capital as well as international expertise and best practices to support
business expansion and economic
growth, creating opportunities for
cross-border investments.
Inter-regional deals led by nonAsia Pacific acquirers have increased
25 percent to $11.6 billion in 2006,
featuring global incumbents such as
Goldman Sachs, Citigroup and Standard Chartered. Notably, intra-regional
investments shot up to $4.2 billion
in 2006 from merely $0.9 billion in
2005, outshining the growth of interregional investments.
In intra-regional deals, wellcapitalised and high-performing
banks from Australia, Hong Kong
and Singapore have proven to be the
most active in seeking investment
M&A deals in Asia Pacific’s banking sector are on the rise
Source: Bureau van Dijk - Zephyr
opportunities beyond their home
market boundaries, striking more
than half of the total number of intra-regional deals in 2006. As these
banks operate in relatively saturated
markets, they have to look outward
for growth.
The most recent activities observed
in intra-regional deals also entail a
surge of investments from less-developed banking systems, such as China
Construction Bank’s acquisition of
Bank of America (Asia) in Hong
Kong, and Industry and Commercial
Bank of China’s acquisition of Bank
Halim in Indonesia. After successful
mega-IPOs, the once under-capitalised Chinese state-owned banks are
now better prepared to pursue their
overseas exposure.
Cross-border vs. domestic deals
Asia’s two biggest emerging economies,
India and China, contributed 29 and
24 deals respectively to the total 142
deals announced in Asia Pacific in
2006, dominating the top two spots
in terms of deal volume by country.
While India’s M&A agenda was centred around merging small players into
big ones, China was more engaged
with the regional and global institutional investors that deployed $9.1
billion, or 57.2 percent, of
the total cross-border deal
value in Asia Pacific to participate in the fast transformation of the country’s
banking landscape.
In terms of deal value,
China emerged as the
most popular location for
M&A, dominating over one-third of
the aggregate with 2006-announced
deal value amounting to $11.4 billon.
South Korea was next-most popular
with $9.2 billion while Taiwan and
Malaysia followed somewhat behind
with less than $3 billion each – al-
Breakdown of bank M&A activities by deal type (based on deal value, ex-Japan)
Source: Bureau van Dijk - Zephyr
though the figures are considerably
higher than those of the previous year
as the long-delayed market consolidation is finally poised to take off.
The largest deal in 2006 was
Shinhan Financial Group’s $7-billion acquisition of LG Card in
South Korea (Shinhan spent another
$893 million on the remaining 14.3
percent stake in LG Card in May
2007), which also marked the largest takeover in Korean history. With
equally to total Asia Pacific M&A
activities in 2006, despite much
higher cross-border contribution in
the previous two years if we exclude
the ups-and-downs in Japan.
M&A Outlook
As corporate governance, risk management processes, profitability and
asset quality steadily improve across
Asia Pacific’s banking sector and more
investments are pumped in, the M&A
market is trending toward
being more seller-driven
with the price-to-book
ratios (P/B) of the banking
sector inching up across all
major regional economies
except Japan.
Take the recent crossborder deals in China as
examples: Bank of America paid 1.2
P/B to purchase a nine percent stake
in China Construction Bank in June
2005; just one year later, Banco Bilbao
Vizcaya Argentaria had to pay 3.3 P/B
to acquire a minority stake in health
lender China CITIC Bank.
The largest deal in 2006 was
Shinhan Financial Group’s
$7-billion acquisition of LG Card
in South Korea
the LG Card purchase, Shinhan has
replaced Kookmin Bank as the No.1
credit card issuer in the country
amid the strong rebounding of the
card business.
In total, domestic deals and crossborder deals contributed almost
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Bank M&As in the Asia Pacific
Top Deals Announced in 2006
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P/B ratio is on the rise for many Asian banking sectors, except Japan
Source: Asian Banker Research
(Continued from page 61)
Acquisitions or the taking of minority stakes are no longer bargains in
many cases; however, we believe there
is still strong potential in the region’s
M&A market, despite idiosyncrasies
in various key economies.
China will remain the most
powerful draw of cross-border investments in the next two years,
but this will abate slowly due to the
accomplishment of the large banks’
IPO processes. More investments
will flow into the better performers of the second-tier joint-stock
banks and third-tier city commercial banks.
In China’s domestic market, we
also foresee a more visible trend of
consolidation between local lenders,
especially between the city commercial
banks, which have now been given the
go-ahead to expand into other cities.
It is very likely a handful of more
provincial-level players will emerge
through the government-led mergers
of local lenders.
Foreign institutional investors are
also eyeing Indian banks, but it is a
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matter of whether the regulator will
be more accommodative after 2009
– it has already issued guidelines
prohibiting foreigners from acquiring healthy banks
until 2009. Thus, future M&A activities
in India’s crowded
banking market will
still be very much a
local play. The government has directed
a number of mergers
among state-owned
lenders in the past
– but it remains to be
seen whether these are
real consolidations or
just combinations of
two messy balance sheets.
So far, ICICI has been the most
successful local bank in driving the
M&A agenda to grow inorganically,
but this is against a background where
most other private sector banks in
India have yet to demonstrate leadership due to lack of scale and access
to capital.
In South Korea, fierce competition and further liberalisation will
continue fuelling the consolidation process in the banking market. Like their peers in the highly
saturated Australia, Hong Kong
and Singapore markets, Korean
banks will find increasingly more
appeal in the deals that target
players with strong retail focuses,
wealth management focuses or
overseas operations.
In Taiwan, foreign banks have
grown more aggressive in the aftermath of the card crisis, as many
small lenders are desperate for capital to sustain operations. Standard
Chartered Bank took over Hsinchu
International Bank in September
last year while Citigroup and ABN
AMRO recently acquired Bank
of Overseas Chinese and Taitung
Business Bank respectively. However, foreign investments do not
really help to reduce the number
of players in the
domestic market,
and policy markers
have yet to come
up with effective
measures to accelerate the consolidation process.
Strong M&A activities among banking institutions will
most likely continue
to be sustained in
the coming years.
However, the rationales driving the deals – better operating efficiency, higher capital and
diversified businesses – have yet to be
realised amid integration pains. We
will just have to wait to see a more
consolidated, healthier and more interrelated banking system forming up
step by step in each major economy
of the region.
China will
remain the most
powerful draw
of cross-border
investments
in the next
two years