Mizuho Approaches ANZ for $570m Stake in Bank Panin

[Updated at 2:31 p.m. on Tuesday, August 13, 2013]

Mizuho Financial Group Inc has approached Australia and New Zealand Banking Group Ltd to buy ANZ’s 39.2 percent stake in Bank Pan Indonesia (Panin) valued around $570 million, sources told Reuters, as the Japanese bank seeks to step up its Southeast Asian expansion.

Mizuho, Japan’s second-biggest bank by assets, made the approach to ANZ last month and the discussions are at an early stage, one of the sources told Reuters. It was unclear whether the talks would result in a transaction.

The discussions come as Mizuho tries to build its footprint in Southeast Asia, where it lags its Japanese rivals in expanding in the fast-growing region. ANZ Chief Executive Mike Smith said previously that he would be open to selling some Asian bank stakes in the wake of new capital rules proposed by Australian regulators.

ANZ has been the most aggressive of Australia’s top four banks to push into Asia, investing in 15 countries in the region from Malaysia to China. Many of ANZ’s Asian bank stakes are minority holdings and it therefore would be required to hold more capital under Australia’s proposed regulations.

“The carrying value is around A$668 million ($613 million) and ANZ should be aiming for this if it were to sell the stake,” said Sydney-based T.S. Lim, a senior banking analyst at Bell Potter Securities.

“The upside would then be an improved Tier 1 by half of that amount that could free up capital to be returned to shareholders. It also enables ANZ to grow organically and have a focus more consistent with its institutional/commercial ambitions,” he added.

Shares of ANZ turned positive and were trading up 1 percent after the Reuters report. Bank Panin shares jumped 6.3 percent and Mizuho was up 1.5 percent.

ANZ and Mizuho declined to comment. Bank Panin officials were not immediately available to comment. The sources declined to be identified because the discussions were confidential.

Moody’s Investors Service said last month that it does not expect ANZ to support Bank Panin due to reduced chances of getting eventual control, as ANZ’s stake is already close to Indonesia’s new banking ownership limits.

Indonesia has put a 40 percent cap on single ownership in its local banks, a rule that forced Singapore’s DBS Group Holdings to walk away from a planned takeover of Indonesia’s Bank Danamon after the deal remained stuck for more than a year.

The other factors that Moody’s considered include the higher capital cost for holding minority stakes under Basel III rules and ANZ’s 99 percent stake in ANZ Indonesia, which reduces the strategic benefits of a stake in Panin.

“On balance, we believe these factors have diminished the incentives for ANZ to further support Panin,” Moody’s said.

Japan into Southeast Asia

Japanese banks and insurers, on the other hand, have been making steady inroads into Southeast Asia as they battle sluggish growth at home. Just this year alone, Japanese banks have announced $8.2 billion worth of deals in Southeast Asia.

ANZ and Indonesia’s Gunawan family have had a rocky relationship since Australia’s fourth-biggest bank acquired a minority stake in Panin in 1998, which it subsequently raised to 39.22 percent.

ANZ’s stake did not come with management rights, and in 2010 it unsuccessfully tried to buy the Gunawan family’s 46 percent stake in the Indonesian lender, which has further strained their relationship, sources said. The deal fumbled as the two parties failed to reach an agreement over price, Reuters reported previously.

A successful deal would help Mizuho catch up with top Japanese lender Mitsubishi UFJ Financial Group Inc (MUFG) and No. 3 Sumitomo Mitsui Financial Group Inc (SMFG) , which have already sealed deals in Thailand and Indonesia.

Last month MUFG agreed to pay $5.6 billion for a controlling stake in Thailand’s Bank of Ayudhya, while SMFG in May agreed to buy a $1.5 billion stake in Indonesia’s BTPN .

SMBC paid about 4.6 times price-to-book to buy into BTPN.

Bank Panin trades at a price-to-book of 0.9 times, while Indonesian banks on average trade at 1.8 times, according to Thomson Reuters data.

In February, Mizuho President Yasuhiro Sato said his bank was looking to further expand overseas by acquiring either an Asian investment bank or a U.S. commercial bank over the next three years.

In 2011, Mizuho bought a 15 percent stake in Vietcombank for $567 million.

— Additional reporting by Janeman Latul in Jakarta, Taiga Uranaka in Tokyo and Jackie Range in Sydney