Why the BAY-BTMU merger is good for long-term

It will improve BAY's ompetitiveness in the corporate loan segment.

According to Maybank Kim Eng, BAY announced a capital raising plan (at THB39.0/share) and a merger plan with the BTMU Bangkok branch.

"We do not expect this issue to affect the share price as market has known and been waiting for this VTO program. In the short-term, this plan will reduce the BAY EPS and ROE."

Here's more from Maybank Kim Eng:

Announcement of a capital raise. BAY announced a capital raising plan via a Private Placement (PP) at THB39.0/share with the Bank of TokyoMitsubishi UFJ Ltd. (BTMU).

This will occur after completion of a Voluntary Tender Offer (VTO) scheduled for Nov – Dec 2013. The key reason for this capital issue is to acquire the BTMU Bangkok operations.

The capital issue will be in two parts. First, BTMU will buy the first tranche  of new BAY shares and then will trade all BTMU Bangkok shares (net assets) for the second share tranche. A shareholders’ meeting will be held on 31 Oct 13.

Good for long-term, but needs time for adjustment in short-run. This capital exercise and merger with BTMU Bangkok is in line with market expectation.

We see this as positive for BAY in the long-run as this will  help improve competitiveness in the corporate loan segment (especially with Japanese clients), which at present remains a weak area for BAY.

However, after the merger (around 1-2 years), we expect that the first stage will see reorganisation and systems integration. This will hurt the operating performance in the short-term, as it did during GE entry and the acquisition of GE subsidiaries or in the TCAP – SCIB case.