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Saturday, 13 January 2018 | MYT 12:00 AM

Old deal resurfaces

MUBADALA Investment Corp has always wanted to exit from RHB Bank.

The deal was never done before because of valuation issues.

In the latest development, the restructured Abu Dhabi sovereign wealth fund is reported to be keen on disposing its 17.8% stake in RHB Bank. Towards this end, it has been reported that Mubadala has held informal discussions with potential advisers seeking proposals to dispose the stake.

The Abu Dhabi fund has had several suitors – mainly from the local banking scene – before. However, a deal could not be struck because of valuation issues.

Mubadala’s entry into RHB Bank can be traced to 2008 when there was big hype on Middle-Eastern investments in Malaysia.

Abu Dhabi Commercial Bank (ADCB), a government-owned entity, took up a 25% stake in RHB Bank at 2.3 times book value. The price was US$1.23bil then.

In 2011, ADCB sold its stake to sister company, Aabar Investments PJS, for similar valuations, although the market valuations had come down.

The related-party transaction was done to ensure that ADCB did not have to write down the value in its books.

At that time, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd had expressed interest in the block held by ADCB, but were not willing to pay the asking price. In the end, both Maybank and CIMB put in identical bids for the stake, paving the way for Aabar to come in.

Aabar is owned by International Petroleum Investment Corp, which has now been taken over by Mubadala under a restructuring in 2016.

Since the 2008 financial crisis, banks no longer command hefty valuations. It is hard to get valuations of more than 1.3 times book.

At the moment, RHB Bank is trading at 0.9 times book and Mubadala’s 17.8% stake is worth RM3.7bil (US$920mil). After 10 years of investing in RHB Bank, the Abu Dhabi fund would certainly like to see a better return than 0.9 times book value.

The question is who would be prepared to pay more than 1.3 times book value? And the party has to pass Bank Negara’s test of “fit and proper”, which is not easy.

Foreign banks are unlikely to be interested due to new rules on capital requirements, while private equity funds are not exactly the flavour of Bank Negara. That probably leaves only the local financial players as the favourites to land the stake.

Trade war brewing?

IS the risk of a trade war higher now? Doomsayers have predicted that this year could see an escalation of disagreements over trade, and sadly, their prediction looks to be coming true.

The latest news coming out of North America does not bode well for the future of trade.

Canada believes that the US may pull out of the North American Free Trade Agreement (Nafta), which US president Donald Trump (pic), as part of his campaign promise, said must be revamped. The Trump administration has been highly critical of trade agreements, with one of Trump’s first act being to pull the US out of the Trans-Pacific Partnership talks, a grouping that includes Malaysia.

It will have a negative impact on the global economy should there be uncertainties over how trade is run. Take a trade-dependent economy like Malaysia, for example. The latest full-year data available for exports show that exports contributed 67.24% in terms of value to gross domestic product in 2016.

Further underscoring the importance of trade to Malaysia, according to the Statistics Department, total value of trade, exports, imports and trade balance for the first 11 months of 2017 had surpassed that of the whole of 2016. Exports in the first 11 months totalled RM856.05bil.

The US’ latest spat with Canada ranges from aircraft to wine. Nafta trade negotiators from the US, Mexico and Canada are scheduled to meet later this month for the final time over changes to the agreement signed in 1994. Trump has also threatened to pull out of Nafta. Then there is the ongoing spat with China over trade that may see Trump grandstanding on his economic nationalist credentials at the World Economic Forum’s annual meeting in Davos. Switzerland.

The US was the third most important market for Malaysian exports in the first 11 months of last year, constituting 9.5% or RM81.74bil of total exports, much of it from manufactured goods. Uncertainties over global trade will be harmful to all economies, given the intricate networks forged through the supply-chain economy, with jobs and livelihoods on the line not only in Malaysia but also the US.

Paltry compensation

THE good news is that Notion VTec Bhd’s share price has been up since the start of the year, and the company has received some compensation from its insurance company for damages to its factory caused by a fire.

The bad news is that the insurance payment is not anywhere close to what it had been expecting.

Notion VTec last week told Bursa Malaysia that its insurers had made an advance claim payment of RM15mil to its wholly-owned subsidiary, and that the board would make a further announcement whenever there is a new development as well as any significant financial impact on the insurance claim.

There was no mention whether the RM15mil was for property damage or business interruption, as it had announced in October last year that it had insurance coverage of RM350mil for property damage and RM217mil for business interruption of up to 18 months.

But the RM15mil it received was significantly lower than the damage it said the fire had caused to its factory.

In October last year, it said the fire had caused damages worth between RM150mil and RM200mil to its factory in Klang.

The fire was expected to cause losses for the company but when it announced its fourth-quarter numbers, the precision parts manufacturer announced a loss of RM1mil for the quarter and that was before the fire gutted its Klang factory.

At the end of the fourth quarter, Notion VTec’s property, plant and equipment was valued at RM213.2mil in its books and its inventory amounted to RM45.8mil.

For the full year, Notion VTec made a profit of RM12.6mil.

Both those values are substantially lower than what it claims it is insured for and it will be interesting to see if there are further payments to its insurance claims.