GE Asia likely to buy 25% stake of Bank of Ayudhya

Bangkok, May 18 | Updated: May 19 2006, 05:43am hrs
General Electric Cos Asian consumer finance unit offered to buy 25% of Bank of Ayudhya Pcl, Thailands sixth-largest lender, for about $300 million, to tap a market of 65 million people and a growing demand for credit.

GE Asia offered to buy new shares from the bank at 16 baht apiece, Ayudhya said in a statement in Bangkok on Thursday. Ayudhya president Pongpinit Tejagupta said the price was acceptable.

GE is boosting its consumer finance business in Asia to take advantage of the growing demand for credit as economies expand and incomes rise. Fairfield, Connecticut-based GE bought a 7% stake in Chinas Shenzhen Development Bank Co in October for $100 million, becoming the lenders second-largest shareholder.

We have been expecting this, said Sopida Luveeraphan, who helps manage 190 billion baht ($4.9 billion) in bonds, equities and property at MFC Asset Management Pcl in Bangkok. Ayudhya needs more capital, and its loan loss provisioning is not enough. The pricing is quite fair, she said.

Ayudhya had 39.9 billion baht in non-performing loans as of March 31, or 8.6% of its total lending, compared with 8.85 for the average of Thai commercial banks, central bank data show. It has 18.3 billion baht in provisions for bad loans. GE Moneys Thai operation has a non-performing loan ratio of 1.82%.

In April, the International Monetary Fund raised its 2006 growth forecast for Asia, excluding Japan, to 7.9% from 6.9%. In the same month, Thailands central bank said growth in Southeast Asias second-largest economy may slow to 4.25% this year, from 4.5% in 2005, because of rising oil prices and interest rates and political uncertainty.

Thailands Constitutional Court on May 8 nullified last months election, which was boycotted by opposition parties, and ordered the countrys third vote since February last year. Its a critical step for the bank and for the bank sector, having a large foreign institution coming as a strategic partner, Vincent Milton, MD, Fitch Ratings in Thailand, said.

Based on Ayudhyas market value and outstanding shares, the purchase may cost about 11.5 billion baht ($301 million), according to Bloomberg calculations. A GE spokesman declined to say how many shares will be acquired.

Weve entered into an exclusive negotiation with Bank of Ayudhya for a strategic investment in the bank, Duke Theerathada, vice president communications & public affairs at GE Money in Bangkok, said adding,Its waiting for government approval.

The transaction will require Ayudhya to merge with GE Money Retail Bank, a local unit of GE, under central bank rules requiring finance companies to consolidate their holdings. GE and Bank of Ayudhya have a credit card joint venture in Thailand.

GE is one of the best partners for Ayudhya, said Kasem Prunratanamala of CIMB-GK Securities, Bangkok. He rates the stock neutral because of the share prices recent gains. They have been working together for quite some time so they know each other already, he added.