Hwang Investment Management up for sale

16 September 2013   Category: News, Asia, Malaysia   By Toby Garrod

Despite a backdrop of choppy economic conditions, Hwang Investment Management (Hwang IM) is prospering amid strong business fundamentals and the possible installation of new major shareholder Affin Investment Bank. On September 5, Affin signed an exclusive agreement for the proposed acquisition of Hwang IM’s parent company Hwang-DBS Bhd.
 
The news of a country rating downgrade from Fitch Ratings, the uncertainties regarding the buyout of Hwang-DBS, and months of pre-election jitters failed to hold back the company’s advancing AUM, which grew from 20 billion ringgit (US$6.08 billion) at the beginning of the year to 24 billion ringgit by end-August, for a gain of 20%.
   
“We are still confident about our ability to continue the AUM growth trajectory,” Teng Chee Wai, chief executive officer and executive director of Hwang IM tells Asia Asset Management. “Despite present market uncertainties and an ongoing corporate exercise, our AUM sales target of 30 billion ringgit by 2015 remains intact, particularly with the backing of a financial institution and the access the new parent company will bring to the entity.”
 
Such advances may be helped along by the remarkable performance of the retail asset management market in Malaysia of late. While the overall ASEAN region displayed very strong retail AUM growth of 23.5% in 2012, with total AUM reaching US$265.1 billion by the end of the year, Malaysia registered growth of 25.5%, becoming the first country in the region (including Singapore) to cross the $100 billion mark. 
 
Meanwhile, synergies with Affin, if the deal goes through, should also drive AUM gains. 
 
“The change of ownership will bring together many synergies from the two entities, both in terms of economics and financials,” says Mr. Teng. “The enlarged entity will be able to leverage the strengths and diversity of the financial institution. Affin will invariably provide wider business opportunities and greater access to the government-linked and state-owned agencies, a market segment that was previously not readily available to us. Combining the expertise of Hwang IM and Affin Fund Management will undeniably help enhance our investment solutions offerings and performance.”
 
But negotiations between the stakeholders are ongoing and the final transaction will require Bank Negara Malaysia’s seal of approval. Only when all the processes related to the M&A exercise have cleared the relevant regulatory authorities will Hwang IM become a subsidiary of Affin.
 
Reasons for the sale
 
It seems the major shareholders have very different reasons for wanting to sell the Hwang-DBS Group of entities. 
 
“Basically DBS has benefitted considerably from this venture since inception and feels that now is an opportune time for them to exit,” says Mr. Teng. “As for the Hwang family, the financial sector landscape in Malaysia has changed quite dramatically over the years and is becoming very competitive against a backdrop of an increasingly deregulated capital market. To continue the legacy of the late founder, Hwang Sing Lue, it was advocated that a stronger shareholder would be able to grow the company to its next level. 
 
The CEO says that Affin was the clear choice of partner not only because of the synergistic value that the merger brings to the new entity, but also because the mananagement has quite benevolently agreed to retain all existing talents and employees under the acquired subsidiaries.
 
“Long-term incentives have been put in place and the management team is commited to staying,” Mr. Teng notes. 
 
The share prices of both firms have risen since the exclusive agreement for the proposed acquisition of Hwang IM was signed.
 
Nevertheless, while the purchase price has not yet been revealed, rumours are circulating of a proposed PE of 20x, which would be demanding.
 
It is also unclear whether Nikko Asset Management’s 30% stake in the Hwang IM will be included in the proposed sale to Affin.