Capital injections loom in finance M&A

11:23 | 04/05/2021
Although the pandemic is still taking a serious toll on the economy, foreign investors are banking on cross-border mergers and acquisitions in the financial industry, especially in consumer finance and retail banking, illustrating the urgency to acquire new capabilities.
1542 p24 capital injections loom in finance ma
Capital injections loom in finance M&A

Japanese financial group Sumitomo Mitsui Financial Group (SMFG) – parent of Sumitomo Mitsui Banking Corporation (SMBC) and consumer arm SMBCCF – was last week reportedly to acquire 49 per cent in FE Credit, Vietnam’s largest consumer finance company under VPBank.

Deputy Prime Minister Pham Binh Minh told Masahiro Yoshimura, general manager of Business Development Department at SMFG, at a reception last week that he welcomed SMBC’s investment in FE Credit, and noted his belief that the cooperation will be a success.

SMFG will pay $1.4 billion to buy 49 per cent at FE Credit, making it the largest deal conducted by a Japanese bank in Vietnam’s financial institution landscape. “The looming acquisition comes as Vietnam’s consumer loan market rapidly expands on the back of strong and sustained economic growth,” reported Nikkei Asia. “Sumitomo is aiming to widen its business in Asia by leveraging its digitalisation and customer management expertise.” FE Credit, after the deal, is now valued at $2.8 billion.

A representative of VPBank told VIR, “Through this transaction, FE Credit is expected to receive additional support and international expertise in capital resources, as well as management skills from SMFG, especially from SMBCCF.

“At the same time, this transaction will inject a large amount of capital to VPBank, bolstering the bank’s solid growth fundamentals and enhancing its financial capabilities to explore its huge potential as well as capitalise on the emerging financial industry in Vietnam,” the representative added.

VPBank’s Board of Directors initially forecast that a successful initial public offering could triple FE Credit’s share price compared to the book value after equitisation.

The $1.4 billion bet on FE Credit is part of SMFG’s strategy to increase its footprint in Asia. The mega deal will offer mutual benefits, where the Japanese lender fund could jump on the lucrative consumer finance bandwagon in Vietnam, and FE Credit could enhance its operations to international standards.

SMBC Group is one of the three biggest banking and financial groups in Japan, with total assets of over $2.1 trillion as of December 31 last year. The group operates in retail banking, corporate banking, and investment banking worldwide, and is present in over 40 countries.

Last December, SMFG was allegedly planning to acquire an Asian lender, specifically in Vietnam, the Philippines, and India. Accordingly, the bank would cooperate with a global investment bank on US deal-making activities.

Elsewhere, international banks including DBS Group, Mitsubishi UFJ Financial Group, OCBC, and Standard Chartered are allegedly vying to each other to buy Citibank’s retail banking business in Asia after the latter’s announcement to shut down this arm in 13 markets a fortnight ago.

“The sale process will start within a couple of weeks, they added, declining to be named as they were not authorised to speak to media. Potential bids from the regional banks and Standard Chartered, which makes most of its profit in Asia, underscores their growing appetite for businesses like credit cards and mortgages in a push to lock in long-term income growth,” Reuters noted.

“Asia is critical to our group’s strategy, and we will allocate resources to drive profitable growth,” a Citi spokesman in Hong Kong said.

At the same time, Japanese banks MUFG and Sumitomo Mitsui Financial Group, along with Brit-based Standard Chartered, are mentioned as other potential bidders. In South Korea, financial institutions OK Financial Group and DGB Financial Group are strong candidates if a bidding war to acquire Citibank’s retail subsidiary takes place.

Specifically, DBS – the Singaporean multinational banking and financial services corporation – is reportedly mulling over buying Citibank’s retail business in India, according to The Hindu Times.

“DBS has always been open to exploring sensible bolt-on opportunities in markets where we have a consumer banking franchise and where we can overlay our digital capabilities,” DBS said in a statement.

Besides DBS, Standard Chartered and Kotak Mahindra Bank and Axis Bank also show their interest in the deal in India. Meanwhile, Bloomberg reported the Bank of the Philippines – the country’s oldest lender – is mulling over acquiring Citibank’s retail arm domestically.

“We have told them that as soon as there is any information, we will take a look at it and most likely, we will be interested,” the bank’s president TG Limcaoco said, referring to Citigroup’s retail banking business.

In Vietnam, Citibank has been one of the most prestigious foreign lenders for years, providing a wide range of services from credit cards to wealth management, among others.

Citibank’s representative in Vietnam previously said that the withdrawal will not affect to its long-term commitment in this country. Citigroup’s consumer banking business in 13 markets made up for $4.2 billion of the bank’s revenue in 2020 of $74.3 billion.

By Nhat Minh

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