Sage 3

Project FIG
Indicative Valuation / Transaction Certifier
December 2023
Executive Summary

We received an invitation to submit our fee for the roles of Independent Valuer and Independent
Transaction Certifier in connection with Phase 2 of the DFI merger.
Response to
Invitation for Fee Fee quotes for both roles are provided. However, preference is to be engaged as Independent Valuer
Submission and undertake overall project management. This will be beneficial so that the timeline for both
exercises can be achieved. We can source a suitable, licensed third party advisor, for the role of
transaction certifier.

This valuation provides an opportunity to steer the enlarged group moving forward and should not
be viewed solely as a "box-ticking" exercise.

We highlight key considerations for BPMB's management to consider:

Key 1. The structure of the enlarged entity;
Considerations 2. Review of the existing portfolio at each bank;
3. Determine key competitive advantages to drive retention vs disposal decision;
4. Brand value, goodwill and intangibles; and
5. NPL Recovery and increasing Intrinsic Value

Strategic Sage 3 is uniquely placed to assist BPMB meet its strategic goals due to the experience of our
Partnership directors and the profiles of the proposed project team are provided.
Context of this valuation exercise
Private & Confidential

BPMB SME Bank EXIM Bank

Provides medium and long-term
financing for infrastructure projects,
maritime, capital-intensive and high
technology industries and other
sectors in line with the national
development policy.
Provides financing and advisory Provides credit facilities to support
services to small and medium sized the exports and imports of goods
enterprises involved in and overseas projects as well as to
manufacturing, services and provide export credit insurance and
construction sectors. guarantee services.

Net
(loss)/profit RM212 million RM66 million (RM66 million)
for the year
Gross
Impaired 11.30% 16.88% 42.52%
Financing
Ratio:
Risk Weighted
Capital Ratio
37.22% 18.92% 43.01%

• The three financial institutions shares a similarity in existing financing programme for specific focus
(e.g., sustainability, tourism, industry 4.0 adoption and project development)
• Bank Negara Malaysia's report indicates that the bulk of the DFI lending is geared towards
manufacturing, agriculture, construction, real estate, transport, and storage.

Sage 3
Context of Valuation …not mere formality
Private & Confidential

• Both SME and EXIM banks are owned by MOF, as such some may see this transaction as a mere determined
value is for amount which goes from left to right pocket. Therefore, actual value computed may appear as
formality at first instance. We think it is more nuanced
• The valuation exercise will have implication on those stakeholders within Exim and SME who are responsible for
the portfolio . Please see our slide X on the value and the particular issue of quality of portfolio
• For BPMB stakeholders getting value wrong would profound implication on managing the bad portfolio going
forward please see appendix on the application theory in respect to decision banks take on recovery of their
debt. See appendix. This not mention potentially unfair accountability to BPMB management who do not have
any thing with legacy decision on lending

Sage 3
Context of Valuation …mere formality
Private & Confidential

• Both SME and EXIM banks are owned by MOF, as such some may see this transaction as a mere determined
value is for amount which goes from left to right pocket. Therefore, actual value computed may appear as
formality at first instance. We think it is more nuanced
• BPMP evaluates investments via Measuring Impact on National Development (MINDS)

100 Projects assessed with the MIND Framework since Jan 2020

220 19,000
208.4MWh
Kilometers Students
Development Impact Of transition energy Of roads built and Served
Indicators Financials and generated fixed

• Contribution to 6 Economic Indicators

Sustainable Development
Goals (SDGs)
• Bank Negara Malaysia
(BNM) Additionalities
• Safeguard Indicators
• Others – Direct
Beneficiaries
• BPMP Credit Risk Rating
• Private Sector Crowding-
In
• Private Sector Crowding-
Out
Of affordable homes
and workers quarters
Created built Patients Served

9,493 Jobs 2,790 Units 19,632

Extracted and Adapted from BPMP AR 2022

Sage 3
Where Financial Institutions in Malaysia Overlap
Private & Confidential

- Why understanding the portfolios is important

in our opinion –
which will achie
Should not be
involved in
something that
mature sectors e.g., unsecured
that are served advisory service
Commercial by other FIs
connect to othe
Banks
Investment Currently Overlapped in Industry
Coverage
Banks
(Manufacturing, Wholesale
Development
Trade, Finance & Business Financial
Standalone
Entity but Services, Construction) Institutions
Linked

Islamic DFIs in Malaysia should focus on other portfolios that are not related and
Banks overlapped with commercial banks. For example, focusing on portfolios like
Agriculture by synchronize with farmers' on their seasonal credit needs instead
of merely providing bigger loans to better-off farmers.

Another portfolio DFIs should focus on is manufacturing. DFIs like MIDF’s soft
Same loan scheme through its machinery / equipment financing and working capital
Roles provides ample room for manufacturing firms in Malaysia to leverage at a 4%
interest / profit rate with conditions of submission of action plans for these
manufacturing firms to move higher value-added activities

Sage 3
Evolving the Approach
Private & Confidential

1 Fundamental approaches to valuing Financial Institutions include various methods;

Asset Approach Income Approach Market Approach

• Adjusted Net Asset Value 1. Equity Cash Flow • Determining target DFIs
2. Residual Income equity value as a function
3. Dividend Discount of their peers

2 Considering the nature of DFIs with specific mandates, fundamental approaches can be combined for a more accurate view

Portfolioretail + Portfolioforeign + Portfoliocommericaldomestic + Portfoliomandatedsectors + Physical assets

Sum of Parts
(Less): Deposits + Other liabilities
For Illustrative purposes only

3 Nature of DFI deposits differ from Commercial banks, nature of these deposits/borrowings need to be valued as such
4 Understanding the expected credit loss model, credit policies, and how it changes the valuation approach

5 No unique, common framework for bank valuation, and from this perspective, there are open possibilities to discover different
approaches in measuring value of banks and related financial Institutions
1

Sage 3 1
Eva, H. (2010). Methods of bank valuation. Economic Analysis, 43(1-2), 50-60
How do we link this exercise to Strategy and Value
Private & Confidential

Creation
Incubation and Entrepreneur Developing Assets of National
development Importance

EXIM
SME BPMB

Preferred Financier &

Advisory for Global Expansion

• All are governed by the Development Finance Institution Act 2002, also members of ADFIM

• Considering the existing role played by each institution and its impact on the enlarged entity

• Creation of value through by not overlapping with areas/products currently served by commercial banks

• EXIM Bank is a known brand worldwide, SME Bank services those businesses do not qualify for loans from
commercial banks

Sage 3
 Private & Confidential

e
a tiv nly
r
st s o
I ll u o se
rp
Pu

Valuation
Identifies
Value
Destructive
portfolios

Sage 3
What drives MRCB’s value?
Enterprise value of MRCB can be analysed within the following components:- To better understand the business we have analysed and
e
identified 4 distinct businesses:-
a tiv nly
tr o Enterprise Valuation of MRCB Who?
us s
I l l o se (Customer)
rp
Pu
I. Property Development
Value
II. Construction
Destroying III. Facility Management & Parking
IV. Infrastructure
MV =
RM 3.49 bil
How? What?
(Delivery (Products)
Channels)

BV =
From a group perspective, there are obvious overview
RM 3.88 bil questions on restructuring debt and equity:-

• Is value destroyed by “Conglomerate Discount” or is

there value created by synergies?
• Are debt holders disadvantaged if group support is
discontinued and repayment is dependent on weaker
entities?

For each of the business’s strategy/performance is

evaluated to determine its contribution to group value.
The is critical component of value based restructuring.
14/12/2023 Strictly Private & Confidential 10
SCA & Network
Private & Confidential

PFs that fit can stay – more resources,

others that do not fit can be sold or
outsourced (operational
restructuring)

Once done, build scale and maintain

networks

Sage 3
Supporting our Thinking Private & Confidential

- Mazucato stuff
- European DFI bank

• No unique, common framework for bank valuation, and from this perspective, there are open possibilities to discover different
approaches in measuring value of banks and related financial Institutions - Eva, H. (2010). Methods of bank valuation.
Economic Analysis, 43(1-2), 50-60

Sage 3 Selling NPL etc – Game theory slides in Appendix

 Private & Confidential

Scope of Work – Indicative Valuation Consultant

Sage 3
Scope of Work – Indicative Valuation Consultant
Private & Confidential

Review the following information:

i. Audited financial statements from FY2022 to FY2023 and unaudited financial statements for FY2024
1 ii. Management accounts
iii. Valuation reports
iv. Facilities and Securities Agreements
2 Review of key assumptions, business plans, and market opportunities
Sampling of SME and EXIM loan categorization according to respective bank’s internal risk level categorizations, based on
3 econometric principles
4 Evaluate the various methods to valuing Financial Institutions and selecting the most appropriate methodology for each FI

5 Presentation to Board on selected methodologies for valuation

6 Undertake the Valuation according to agreed upon methodologies

Presentation of draft valuation report to Board which includes:

7 i. Range of indicative valuation for 100% equity stake of both target DFIs
ii. Scenario analysis of indicative equity values based on key assumptions

8 Finalization and submission of Valuation report

Sage 3
Evolving the Approach
Private & Confidential

1 Fundamental approaches to valuing Financial Institutions include various methods;

Asset Approach Income Approach Market Approach

• Adjusted Net Asset Value 1. Equity Cash Flow • Determining target DFIs
2. Residual Income equity value as a function
3. Dividend Discount of their peers

2 Considering the nature of DFIs with specific mandates, fundamental approaches can be combined for a more accurate view

Portfolioretail + Portfolioforeign + Portfoliocommericaldomestic + Portfoliomandatedsectors + Physical assets

Sum of Parts
(Less): Deposits + Other liabilities
For Illustrative purposes only

3 Nature of DFI deposits differ from Commercial banks, nature of these deposits/borrowings need to be valued as such
4 Understanding the expected credit loss model, credit policies, and how it changes the valuation approach

5 No unique, common framework for bank valuation, and from this perspective, there are open possibilities to discover different
approaches in measuring value of banks and related financial Institutions
Eva, H. (2010). Methods of bank valuation. Economic Analysis, 43(1-2), 50-60

Sage 3
Key Considerations for Valuation
Private & Confidential

• Understanding purpose of the valuation exercise can guide portfolios:

methodologies
• Gross Impaired Loan ratio of target DFIs significantly higher
than similarly sized commercial banks, however:
• Nature of loans vary
• DFI lending strategy focuses on development vs profit
• How does role of post-merger BPMB group compare to
commercial banks?
• What considerations need to be made in the valuation
approach that fit these roles?

• Key drivers for valuation methodology include post-merger

strategy for resolution of significant NPL portfolio, such as:
• Sale of NPL portfolio
• Recovery and Restructuring

• Previous transactions advised by Sage 3 directors can shed

light on various approaches:
• Danaharta – Valuation of purchased NPLs based on
underlying security.
• Sapura Energy – []
• Petra – []

• Critical to answer key questions in the assessment of loan

Sage 3
Using Valuation to Drive Strategy
Private & Confidential

• Valuation will identify portfolio that fits the BPMB of various loan portfolios
group’s long-term development goals and portfolio that
is outside of intended scope for potential sale or • Credit Policies
outsourcing
• Portfolio Review and Recommendations
• Computation of acquired portfolio value mixed with
current portfolio pricing will take into account:
• Portfolio size;
• Credit risks;
• Duration;
• Segment of banking; and,
• Currency mix

Understanding of recoverability of significant NPL portfolio

post-merger

• Right pricing of indicative equity value considering

portfolios identified for acquisition or disposal
• Valuation will identify redundancies and synergistic value

Sage 3
7.0 Workflow – Estimated Timelines and Milestones
Private & Confidential

Milestone Expected Completion

1 Formal Engagement T0
2 Data Gathering T+1
3 Analysis of Financial and Credit Documents T+2
4 Analysis of Asset and Liabilities T+3
5 Valuation of Asset Portfolio T+9
6 Assessment of NPL portfolio recovery T + 10
7 Presentation of Draft Valuation Report T + 11
8 Presentation of Final Valuation Report T + 12
9 Workshop – NPL portfolio strategy* T + 16

*This is to be provided pro-bono

We can have a more comprehensive work plan on valuation of bank data gathering, etc which can be put
in the appendix as it will be tick that sage have a comprehensive project plan . Ask ourselves what are the
evaluation criteria

Sage 3
9.0 Fees – Independent Valuer
Private & Confidential

• We assume that the Indicative Valuation exercise, for both targets, will take three (3) months.

• Our fee, based on the estimated time cost (assuming three (3) months), is payable in keeping with
the following milestones:

No Milestone RM

1 Upon appointment of Sage 3 100,000-00

2 Upon completion of data collation 100,000-00
3 Upon completion of interviews 100,000-00
4 Upon provision of the Draft Valuation Report 200,000-00
5 Discussion with BPMB on Draft Valuation Report 200,000-00
6 Upon Submission of Final Valuation Report 350,000-00
Total 1,050,000-00*

*Does not include sales and services tax

Sage 3
 Private & Confidential

Scope of Work – Independent Transaction Certifier

Sage 3
Scope of Work – Independent Transaction Certifier
Private & Confidential

• To understand the underlying transaction and the intentions of the parties;

• To consider the method(s) of valuation used by the Independent Valuer and comment on its suitability
and appropriateness;

• To review and comment on the reasonableness of the underlying bases and assumptions used by the
Independent Valuer;

• To consider, if required, a different method of valuation to be used as a sanity check;

• To review a random sample of loans at the target entities to determine if the credit rating and
designation is correct (Sample size of 10-20 loans);

• To prepare and Independent Advice Letter (“IAL”) in accordance with the relevant guidelines; and

• To run through the draft IAL with the client to address all queries before finalisation.

Sage 3
Fees – Independent Transaction Certifier
Private & Confidential

• We expect that this engagement will not take more than one (1) month* to complete;

• We assume that one IAL is required per target bank.

• Advisory Fee of RM225,000-00 (inclusive of Sales & Service Tax) per IAL payable according to the
following milestones:

No Milestone RM
1 Upon appointment 50,000
2 Upon provision of draft IAL 50,000
3 Upon execution of IAL 125,000
Total 225,000

Sage 3 *To ensure timelines are not compromised the IAL to be provided with the draft Valuation Report
Project Team WIP

ANDREW HOH RAVINDRAN DATO’ DERRICK

DAVIN FERNANDEZ NAVARATNAM FERNANDEZ
(Executive Director)
(Executive Director) (Executive Director) (Executive Director)

• Previously undertook role of • Formerly a Director of PwC Consultancy

Founding member / Senior General
Independent Adviser for the merger and General Manager of Corporate
Finance for Pengurusan Danaharta Manager of Danaharta
between BPMB and Danajamin.
Nasional Bhd before his last posting as the
Completed numerous valuation Chief Information Officer of Bursa
exercises with Sage 3. Malaysia. Youngest branch manager, 25 years
banking experience
• Successfully delivered the • Holds a degree in Electrical and Electronic
restructuring of Propel Global Berhad Engineering from Swansea University. Chief Credit Officer
(formerly Daya Materials Berhad)
leading to upliftment of its PN17 • Qualified as a chartered accountant with
classification. This followed the the Institute of Chartered Accountants in
successful restructuring of Megasteel England & Wales.
Sdn Bhd.
• Undertaking DBA post graduate program
with HKUST.
• Experience in considering the financial
viability of Highway Concessions and
the procurement of funding for the • Valuation of loans and companies, sale of
concessionaire. Non-performing foreign loans

• Head of Financial Services , multiple deals

• Holds a degree in Commerce,
involving FIs
Accounting & Economics from
University of Sydney, Australia. • Set up China’s asset management
company CINDA

• LOFSA
Project Teams – Valuation Related Engagements at Sage 3
Valuation and Expert Witness Transaction Modelling and
NPL Portfolio Recovery Valuation
Work Valuation
Private & Confidential

Thank You

-Author
Appendix: Detailed Work Plan
1 Formal Engagement
2 Data Gathering
3 Analysis of Financial and Credit Documents
4 Analysis of Asset and Liabilities
5 Valuation of Asset Portfolio
6 Assessment of NPL portfolio recovery
7 Presentation of Draft Valuation Report
8 Presentation of Final Valuation Report
9 Workshop – NPL portfolio strategy*
Sage 3
Private & Confidential
Expected Completion
• Execution of Mandate and NDAs T0
• Creation of virtual/physical data rooms T+1
• Designation of working groups
• Briefing on project management plan
• Review of information provided
• Submission of Information Request Lists
• Review of credit and rating policies T+2
• Review of securities documents and relevant documents
• Detailed analysis of Loan portfolio [per sector] T+3
• Quantifying and segregation of loan portfolio according to
valuation methodologies
• Valuation exercise for Loan portfolio T+9
• Assessment of NPL portfolio to estimate recoverability T + 10
• Detailed valuation based on estimated recoverability
• Assessment of options available to address NPL portfolio
• Discussion on Draft Valuation report with Board and Senior T + 11
Management
• Incorporation of comments and revisions
• Presentation and submission of final valuation report T + 12
• Conclusion of engagement
• Pro-bono workshops conducted by Sage 3 directors on options T + 16
available to address NPL portfolio
• Merits of various approaches
• Potential Strategy outline
Risk

Gain / uitilty

Motivation – already okay. .. Shift the motivation

Information – search – every interaction
Evaluation
Decision making
Are the DFI’s fulfilling their promise / role
Private & Confidential

Sanity Checks on traditional valuation methods considering market price and operational ratios of similarly sized FIs,
incorporating various yardsticks

Price/Book Ratio Payout Ratio Net Interest GIL Ratio

Margins
0.77 50.2% 2.50%
0.39 55.9% 2.00%
Source: S&P Capital IQ, Analyst reports

Significant NPL levels at both institutions; Additional value can be realised via recovery post-merger

Gross Impaired Loan 2022 2021

Ratios
16.88% 13.23%

42.52% 39.55%

Source: SME Bank Annual Report 2022, EXIM Bank Annual Report 2022

Directional lending: What segments can be targeted by the enlarged Group

Sage 3