Japan's MUFG to buy Bank of Ayudhya stake for $5.6 billion

Japan’s Mitsubishi UFJ Financial Group has agreed to buy up to 75% of Thailand’s Bank of Ayudhya for ¥560 billion ($5.6 billion), marking the largest purchase of a Thai bank in history.

The deal is the biggest in a string of purchases by Japanese financial institutions as they look to expand outside of their home market, where loan growth is sluggish, and tap into Southeast Asia’s fast-growing economies.

MUFG’s unit Bank of Tokyo-Mitsubishi UFJ will launch a tender offer for Ayudhya’s shares at Bt39 a share in early November. As part of the deal, GE Capital has agreed to tender its entire 25.33% stake in Ayudhya.

GE Capital will make a significant return on its six-year investment, people familiar with the matter said.

The deal is a landmark transaction because of its size and complexity. Investment bankers at Bank of America Merrill Lynch advised BTMU while Morgan Stanley advised GE Capital.

Under Thai law, a bank can only have one presence in the country. This was a major stumbling block in the deal’s history, said people familiar with the situation.

BTMU has been banking Japanese corporate clients in Thailand since the opening of its Bangkok Branch more than 50 years ago. When BTMU realised it would have to merge its Bangkok Branch with Ayudhya, the Japanese sought to buy control of the Thai bank so that they could maintain oversight of their existing client relationships and approve lending standards at the enlarged entity.

Normally, Thailand doesn’t allow foreigners to own more than 49% of a local bank unless the Thai bank is distressed. But under section 16 of the act governing ownership limits, a bank can break through that cap if it is deemed positive for the country’s banking system.

BTMU was helped by the fact it had a long-established presence in the country, was known to the regulators and because Thailand and Japan are close trading partners with numerous Japanese companies already operating in Thailand.

Another consideration was future relations with the other major shareholder, the Ratanarak Group, which own a quarter of the Thai bank’s shares. When GE launched an auction for its stake in Ayudhya last autumn, BTMU quickly saw of its competition because the Ratanarak Group saw them as reliable partners going forward.

These considerations meant that the price was not the absolute governing factor in the deal and BTMU managed to acquire control of the fast-growing Thai bank for an implied 2.02 times March price to book and 13 times expected 2013 earnings. MUFG’s Japanese rival, SMFG, acquired 40% of Indonesia’s BTPN at about 4.5 times book in May. Malaysia’s CIMB bought a stake in BankThai at about 2.91 times in 2008.

As part of the deal the Ratanarak Group will have significant protection of its interest as a minority shareholder, according to people familiar with the matter.

Through its investment in Ayudhya, Thailand’s fifth-largest commercial bank, BTMU is seeking to establish a full-fledged commercial banking platform in Thailand.

The deal is still officially subject to regulatory approvals from the central bank and the finance ministry for the acquisition of shares and the increase of the foreign shareholding limit.