Compass Banca (Compass), which is 100 per cent owned by Mediobanca, is to acquire 19.9 per cent of PT BFI Finance Indonesia Tbk (BFI Finance) from the Trinugraha consortium which currently owns 45.7 per cent of the share capital.
Upon closing, Compass will become one of the largest shareholders in the company. A further 11 per cent will be acquired by StarFinance, a SPV gathering certain Italian private investors. The deal is expected to close by once the relevant authorisations have been received by year-end 2018.
With this deal the Mediobanca Group is continuing its strategy of redeploying capital to specialised, high-growth and highly-profitable banking businesses, supporting Compass’s impressive growth story in increasing its value to the Mediobanca Group as a whole.
With new loans of more than EUR7 billion and a loan book of EUR12 billion, Compass is one of the top three players on the Italian market, with a market share of 12 per cent. It has an established client base (over two million customers), extensive and diversified distribution (171 branches, 7,500 third- party bank branches, 14,000 post offices, and various agreements with retail distribution and agents), and a value-driven management approach (risk analysis and valuation capability at the lending stage coupled with monitoring throughout the entire duration of the loan). In the last decade Compass has tripled its revenues (now EUR1 billion) and loan book (to EUR12.5 billion), and achieved record levels in terms of net profit (EUR315m in the year ended 30 June 2018, up 10x in the decade) and return on allocated capital (ROAC 30 per cent).
The acquisition of 19.9 per cent of BFI Finance represents a further growth option to complete the already impressive growth story achieved on the Italian domestic market.
The investment today is financial in nature. In due course, the possibility of transforming it into an industrial project will be assessed, by increasing the stake in BFI Finance. In the meantime Compass will look for opportunities to contribute its consumer credit sector expertise to the growth of BFI Finance (credit assessment and recovery, product innovation, track record in negotiating commercial agreements).
“Taking a stake in BFI Finance represents a further step in the Mediobanca Group’s path to growth, says Alberto Nagel, Chief Executive Officer of Mediobanca. The deal is consistent with the strategy unveiled in our 2016-19 plan, which includes targeted acquisitions to increase volumes and margins in various of the specialised banking activities on which our business model is based. The work done in these years has positioned Compass stably as one of the leading consumer credit players in Italy, and a significant contributor to the increase in Group revenues. BFI is the ideal option with which to continue this growth story and develop synergies, based on the expertise which Compass has acquired in more than 60 years of operating in this business.”
The BFI deal forms part of the Group’s broader strategy to leverage potential growth opportunities in consumer banking markets. Following in-depth analysis of the reference sector in South East Asia, in particular the countries showing high growth rates (notably India, Indonesia, the Philippines and Vietnam), the Indonesian market emerged as one of the most promising.
Indonesia is an attractive market, for its population size (250 million inhabitants), stable macro- economic system, estimated GDP growth rates among the highest in the Asia-Pacific region for the 2018-21 period (5.5 per cent per annum on average estimated by the IMF), and a weighted annual average increase of 9 per cent in non-food consumption for the 2012-17 period. This is reflecting in the ratings assigned to the country by all the leading international ratings agencies: Fitch BBB (stable); S&P BBB- (stable); and Moody’s Baa2 (stable).
The Indonesian financial sector also shows appealing margins, with risks under control in a constantly improving institutional scenario. The consumer credit market is still in the early stages of a growth phase: 45 per cent of the population does not yet have access to traditional financial services; consumer credit, where BFI Finance is well positioned, penetration is low compared to other countries in the Asia-Pacific area (13.4 per cent of 2016 GDP, compared with an average of 40.7 per cent in the other countries in the same region in the same period), despite the ongoing increase in the number of cars and motor vehicles owned by the Indonesian population.