Bank of Ayudhya

Bank of Ayudhya Plc (BAY)

What’s new?
The Bangkok Post reported this morning that Mitsubishi UFJ Financial Group (MUFG) is in advanced talks to acquire GECIH’s stake in Bank of Ayudhya (BAY). The deal could be worth about Bt125bn, according to the newspaper. After buying the stake in BAY, MUFG would merge it with its existing Thai operation, as is required under the Bank of Thailand’s single presence rule.    
What would change if the deal went through?
If the deal were to go through, the Bank of Tokyo Mitsubishi UFJ (BTMU) would be merged with BAY. That would mean a substantive change in the composition of BAY’s loans. The portfolio of MUFJ’s Thai operation of Bt210bn is composed almost entirely of corporate loans; most of those loans are to the Thai subsidiaries and associates of Japanese companies. BAY’s portfolio is Bt580bn, of which more than 45% is retail and about 20% SME. Given MUFJ’s area of expertise, it’s very likely that BAY’s operation would expand its focus on corporate and SME business.
To tender or not?
Regardless of who bought GECIH’s stake in BAY, we wouldn’t expect the SET to require it to make a tender offer for the remaining outstanding shares. Even if MUFJ were to want to increase its headline shareholding to a level in excess of 25%, we would still assume that the tender offer requirement would be waived (a waiver of the tender offer would require the consent of more than 50% of non-MUFJ shareholders).     
Investment thesis
Following GECIH’s divestment of 7.6% of its stake in BAY on September 25, 2012, it still has 25.4% in the Thai bank (and possibly a significant holding of NVDRs). The entry of a new shareholder with corporate banking expertise could strengthen BAY as a financial institution. We, therefore, maintain our BUY rating.