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The Star Online: Business

Uzma may buy two more firms this year

Posted: 31 May 2014 02:17 AM PDT

PETALING JAYA: As part of its expansion plan, Uzma Bhd aims to complete two additional acquisitions this year that would enhance its core businesses.

"The acquisitions would be local oil and gas companies that will complement our current core businesses, especially in the project oilfield and operation services segment," said chief executive officer Datuk Kamarul Redzuan Muhamed.

The group yesterday signed an agreement to acquire 100% of Thailand-based MMSVS Group Holdings Ltd from the Visitpong family for RM95.4mil (US$29.7mil).

"We target MMSVS to contribute about US$19mil to our top line, but since we are expecting to conclude the acquisition by mid-July, the contribution would be half of the target," Kamarul told reporters after the signing ceremony.

The acquisition is subject to the shareholders' approval at an EGM to be held next month.

MMSVS has seven modern hydraulic workover units for offshore and onshore use, and a truck-mounted service rig.

Kamarul said the acquisition offered opportunities to further expand its oil and gas services in South-East Asia and establish a strong foothold in its regional markets, especially in the area of drilling and well services.

He also said Uzma planned to re-open an office in Qatar. The group has offices in Australia, Indonesia and Thailand.

Bank Islam plans RM1bil capital raising exercise

Posted: 31 May 2014 02:15 AM PDT

BANK Islam Malaysia Bhd, the banking arm of BIMB Holdings Bhd, is filling up its war chest in anticipation of a challenging year in the banking industry as well as for a possible acquisition.

The bank, which aims to be Malaysia's first mega Islamic bank, intends to raise capital via a RM1bil sukuk issuance.

Managing director Datuk Seri Zukri Samat tells StarBizWeek in an interview that for the bank to maintain and grow its market share, it needs to raise capital for expansion.

With such a sizeable sukuk issuance, one can only guess that perhaps Bank Islam is preparing to materialise its acquisition plans within the year.

Bank Islam has been scouting around the Indonesian market for a suitable acquisition since last year but has thus far remained mum about its progress.

He carefully reveals that the bank has identified a potential candidate to acquire and are already in talks with the banking unit to explore opportunities. "We have a slight progress but it is too premature to reveal anything more," he says.

Zukri says the sukuk will be issued in three tranches - RM300mil first for operations this year, another RM300mil to RM400mil for a possible acquisition for this year or next, and a last RM300mil tranche in 2015.

"Going forward, with the kind of asset growth we are projecting, like in financing growth, there is a need for capital this year to maintain a healthy risk-weighted capital ratio. A minimum 8% is required by Bank Negara, but our own internal risk appetite is higher than that, taking into consideration business growth and a possible foreign acquisition," Zukri says.

"Valuations of banking assets in Indonesia have gone up quite fair bit because everyone is eyeing Indonesia there but if there is a compatible acquisition target that makes commercial senses for us, we are willing to go for it," he says.

Under Indonesia's new regulations, foreigners are only allowed to hold a maximum equity of 40% in banking entities. Bank Islam is not fazed by this shareholding requirement, as long as it has the opportunity to grow the bank's business together.

"If we find the right partner, we are prepared to take up to 40% but we want to play a role in developing the bank together."

Ideally, he says, was to find a partner that was open to Bank Islam to take up between 30% to 40% shareholding and reach a management agreement for Bank Islam to support the bank.

"I believe that Bank Islam, being a pioneer Islamic bank in operation for over 30 years, has a lot of product offering and technology transfer to provide," Zukri says.

Aside from expanding into Indonesia, Bank Islam is also aiming to grow its local footprint, in line with Bank Negara's goal to have a mega Islamic bank in Malaysia.

Zukri says: I believe size does matter and there is a lot of benefit becoming a mega Islamic bank.

"There are only two ways of creating a mega Islamic bank - through merger and acquisitions, and by setting up a new bank and injecting billions of ringgit of fresh capital into it," he says as a matter-of-factly.

"From how I see it, it is better to establish one through mergers because there is ready human capital, customer base and banking infrastructure. The turnaround time will be faster."

In terms of local expansion, Bank Islam aims to set up another seven branches this year. It now has 134 branches nationwide and aims to hit 150 end of next year.

"After that we will take a breather from aggressively expanding the branch network."

Bank Islam generally gives its branches a 18-month turnaround target. However, there are a few branches it opens for accessibility to customers than to make profit.

Strategies for the year

As the banking industry anticipates the central bank to raise the overnight policy rate later this year due to inflationary pressures, banks are bracing themselves for some pressures particularly in the consumer or household loan segment.

Bank Islam, however, believes that the impact from the higher interest rate would not dampen its business as it was already prepared for some slowdown in this segment.

Zukri says the household segment will see some pinch especially regarding repayment capability but Bank Islam has always been more strict in underwriting than Bank Negara's lending guidelines.

"Under personal financing, our gross non-performing loans is only 1.1% because we are careful about the quality of our customers; our debt service ratio is healthy and we have never given personal financing for 20 or 25 years.

"So we won't really be impacted by the squeeze in household financing that the industry will feel."

That said, the bank intends to focus more on corporate and commercial lending. "Our consumer to corporate ratio is now 75:25 but our target this year is to achieve a 70:30 ratio."

As at March 2014, Bank Islam's net financing was RM24.96bil, 22% higher than a year ago. Of that, RM19.16bil was consumer financing while RM3.22bil was corporate.

For 2014, Zukri says the banks targets an asset growth of 10%, and a profit growth of 10%. Financing growth is targeted to be 20%, above industry average, because the bank wants to catch up on its low cost of funds-to-deposit ratio. For the first quarter of this year, Bank Islam's financing growth was 21%, in comparison with the 10.6% industry average.

Gross return of equity for 2014 is aimed at 18%, a little lower than last year's 21% due to the upcoming challenging environment.

Even then, the banking concern expects asset quality to remain strong with gross non-performing financing to be about 1.2%.

Gross impaired financing declined to RM299.4mil , showing an improvement of 3.7% for the first quarter. Net impaired financing ratio improved from -0.82% to -0.91% in the same period.

Another set of challenges the Islamic bank will have to weather through is the reclassification of mudarabah, wakalah and musharakah deposits into investment accounts, according to Bank Negara's recent regulation governing the categorisation of Islamic deposits and investment accounts.

The new regulations following the enactment of the Islamic Financial Services Act 2013 will push the cost of deposits funding higher, making it more restrictive to attract depositors.

"The new guidelines states a need for a segregation for deposit and investment accounts. This is already effecitve but banks are allowed a transition period until June 2015," he says.

Bank Islam intends to convert all its mudarabah savings accounts to wadiah savings, which has a lower savings rate.

"Mudarabah can no longer be a deposit account, which means the bank cannot guarantee customers will get their capital back, and this also means customers are no longer covered under the deposit insurance scheme."

Zukri is concerned about a flight of depositors among those who do not realise they have alternatives. He adds that it was important for the depositors to understand that they could choose to convert their mudarabah accounts into investment ones, or look for other products to place their funds in.

"There could be a massive outflow of deposits if the transition from mudarabah is not explained properly," he says, adding that the bank is prepared for the transition.

"We have already developed a product for those who want something similar to mudarabah - to have capital guarantee - that is syariah-compliant and approved by the regulators," he says. The product is not launched yet, however.

On whether a swap of listing status between the bank and its listed holding company BIMB Holdings Bhd was on the cards, Zukri personally thinks that it would be reasonable as shareholders would be able to invest directly into the banking concern.

BIMB Holdings has under its stable Bank Islam, Syarikat Takaful Malaysia Bhd which is already listed and BIMB Securities Sdn Bhd which make a minute contribution to the group's bottomline.

"I am open to the idea of listing Bank Islam. From my perspective, it makes more sense for the bank to be listed because on one hand we will have more flexibility to raise capital for our expansion and on the other the listing status can put the bank in better position for branding," he says.

The neatest way to do this, Zukri pointed out, was through a direct share swap between BIMB and Bank Islam. The listing of Bank Islam would however be the prerogative of the parent company and ultimate shareholder, Lembaga Tabung Haji.

Zukri notes that Takaful Malaysia will likely remain listed.

BIMB Holdings Bhd reported a 66.5% increase in net profit to RM123.45mil in the first quarter ended March 31 2014, from RM74.14mil in same quarter last year, helped by profit contribution following the acquisition of a 49% stake in Bank Islam in December.

Bank Islam recorded a profit before tax and zakat of RM166.6mil, 10% higher than a year ago. Its revenue was also up 8.5% to RM573.6mil.

I-Bhd eyes RM1bil property investment portfolio

Posted: 31 May 2014 02:14 AM PDT

I-Bhd is increasing its property investment portfolio to achieve its target of RM1bil in five years' time.

It aims to have its property investment portfolio stand at RM1bil, with property development contributing some RM500mil to RM600mil.

Although the segment still remains smallish at only RM74mil to date, derived mainly from its data centre and 1,000 car parks, I-Bhd is proactively undertaking three key developments to reach its RM1bil goal.

The recurring income from its investment properties can be used to fund the i-City expansion, says deputy chairman Datuk Eu Hong Chew.

I-Bhd is in a joint venture with Thailand's Central Group, to develop the RM580mil Central Plaza@i-City mall. Targeted for opening in 2017, the 1.5 million sq ft mall will be situated on a plot spanning 11.12 acres with a net leasable area of 1 million sq ft.

The company will reap some RM20mil from this deal over the next two years.

The mall will have 5,000 car park bays, which would translate into RM3.75mil in estimated monthly revenue.

The company is also working with Best Western International, the world's biggest hotel chain to develop a three-star 216-room hotel with a gross development value of RM50mil.

Best Western will also manage its first service suite in Malaysia, namely Best Western Service Suite@i-City, by providing hospitality and building management service for 5+5 years.

I-Bhd is also constructing 6,500 car parks under its i-SoHo project, and is targeting to own 30,000 car park bays once the entire i-City project is completed in 2020.

Among other plans, is for another 400-room hotel, as well as a convention centre as part of the Central Tower development, which will be adjacent to the shopping mall.

Notably, it has already obtained approvals to subdivide part of the site meant for the mall construction, to begin the Central Tower development. The development has a GDV of RM1.2bil and an area of 1.6 million sq ft.

I-Bhd expects to see profit margins of 25% from the tower. The first phase of Central Tower will comprise two residential towers, which will be completed in 2019. The remaining two towers will comprise a hotel and offices.

Another hotel earmarked for the property investment segment will be the hotel under the iconic development The Jewel@i-City, which I-Bhd intends to launch in 2016.

Jewel in a fine city

Lim's grand design for Shah Alam


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