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Banking: Maybank buys in Pakistan

Malayan Bank, Malaysia’s biggest lender, has acquired 15% of Pakistan’s MCB Bank, Pakistan’s fourth-largest bank by asset value. This is the Malaysian bank’s third acquisition in Asia in two months and the largest banking acquisition in Pakistan.

Malayan Bank (Maybank) agreed to buy 15% of MCB Bank for M$2.17 billion ($685.5 million) – an 11% premium on the stock price. It has also secured the right to buy an additional 5% stake in MCB for $247 million from three other institutional investors. This acquisition values MCB at 5.13 times book value. Despite being above the average 4.1 times for Pakistani banks, it is still a more reasonable price tag than the 5.47 times book value that Standard Chartered paid for a controlling stake in Union Bank in July 2006, when the Pakistani banking sector first opened to foreign investors.

Abdul Wahid Omar, chief executive of Maybank, says this is an attractive opportunity to enter a "high-growth and profitable market". He adds that there is ‘limited execution risk’. Maybank expects Pakistan’s economy to emerge relatively unscathed from the recent political turmoil. However, both Moody’s and Standard & Poor’s downgraded the sovereign’s long-term foreign currency rating by one notch last month to B2 and B respectively.

"In terms of political risk, this is something that Maybank should be very aware of... but then, political risk is part and parcel of most emerging market investments," says Ritesh Maheshwari, banks analyst at S&P.

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