PETALING JAYA: Singapore’s DBS Group, which is set to hold direct stakes in two financial institutions in Malaysia, will not have to restructure its shareholdings to comply with the country’s single presence policy for the financial sector.
This is because Temasek Holdings, a 29.5% shareholder of DBS, was granted a special exemption by the Malaysian government when the Singapore sovereign fund acquired Alliance Financial Group (AFG) in 2005, according to banking sources.
“Temasek obtained an exemption from the policy when it bought its stake in AFG. DBS has inherited that flexibility and can hold separate stakes in AFG and Hwang-DBS [Hwang-DBS (M) Bhd],” said the source.
DBS’ shareholding in Hwang-DBS became an issue after Temasek proposed to reorganise its equity interests in the local financial sector. The sovereign wealth fund intends to sell its 14.2% stake in AFG to DBS, while DBS also has a 28% in Hwang-DBS, which has an investment banking licence.
The recent reorganisation of Temasek’s investment in Malaysia sparked speculation that there could be more corporate exercises to follow after the AFG shares have changed hands, and DBS would be forced to comply with Malaysia’s single presence policy for the financial sector once the acquisition of the 14.2% stake in AFG is completed. But this may not be the case as DBS will inherit the special exemption from Temasek.
Duxton Investment has a 49% equity interest in Vertical Theme Sdn Bhd, which is the single largest shareholder of AFG, holding a 29.06% stake. With the 49% shareholding in Vertical Theme, Duxton Investments is effectively holding a 14.2% stake in AFG, which owns the country’s second smallest bank by market capitalisation, Alliance Bank Malaysia Bhd.
Vertical Theme is a partnership between Temasek’s Duxton Investments and Langkah Bahagia Sdn Bhd, a company linked to former finance minister Tun Daim Zainuddin.
Hypothetically, the Singapore financial group may eventually hold 29.1% of AFG should it acquire the remaining 51% of Vertical Theme from Langkah Bahagia.
Under Malaysian policy for the financial sector, no single party is allowed to hold a significant stake in more than one financial institution. Hence, some expect DBS might divest its 28% shareholding in Hwang-DBS or merge Hwang-DBS and AFG, which will further consolidate its equity interests in the Malaysian financial sector.
The speculation of a possible merger has triggered concerns among Hwang-DBS employees, prompting its chairman Datuk Seri Hwang Sing Lue to issue an email to assure them that there “will be no change to the company’s business”.
Hwang, who founded the Penang-based stockbroking firm in the 1970s, assured the firm’s employees that “it is business as usual” in Hwang-DBS, adding that the Hwang family, being the single largest shareholder, would remain committed to the investment bank.
Hwang has a 31.22% equity interest in Hwang-DBS. The 82-year-old founder and his son Hwang Lip Teik are members of the Hwang-DBS board.
That said, while DBS may not be pressured to restructure its shareholdings in AFG and Hwang-DBS, it does not rule out the Singapore banking group selling its stake in Hwang-DBS should the opportunity arise.
“There has been speculation that should it (DBS) decide to sell its stake in Hwang-DBS, it could divest the stake to the Nikko group,” said a banking analyst.
DBS sold a 30% stake in HwangDBS Investment Management Bhd to Nikko Securities in September last year.
“And of course, the merger between AFG and Hwang-DBS is probably not on the table now but if it makes commercial sense for the two to merge, why not?” added the analyst.
This article appeared in The Edge Financial Daily, April 12, 2012.
