Singapore's state investment arm Temasek Holdings edged closer to buying a stake in Malaysia's Alliance Bank, as the bank's parent Malaysian Plantations announced today its key shareholder had obtained central bank approval for sales talk.

In a statement, it said substantial shareholder, Langkah Bahagia Sdn Bhd, had "received a letter of consent from Bank Negara Malaysia to commence negotiations" with Temasek's subsidiary, Asia Financial Holdings Pte Ltd for the sale of its shares in Malaysian Plantations.

No details were given and it is unclear how much equity Langkah Bahagia holds in Malaysian Plantations.

Reports earlier said Temasek was keen to buy up to 30 percent of Malaysian Plantations, which would give Temasek an equivalent equity stake in Alliance Bank, the second smallest of Malaysia's 10 domestic banks.

Should the Alliance Bank sale proceed, it would mark the first time a state-owned Singapore concern has been permitted to buy a substantial stake in a Malaysian financial institution, analysts said.

First step to gradual liberalisation

The proposed deal is part of an ambitious expansion programme by cash-rich Temasek in the region.

It could also be a first step to gradual liberalisation of Malaysia's domestic banking sector under its commitment to open up its door to foreign investors by 2007 in accordance with World Trade Organisation rules.

Under present rules, foreign investors can hold up to 30 percent of domestic banks while a single institutional investor can hold up to 20 percent subject to Bank Negara's approval.

Bank Negara, which oversaw the restructuring of Malaysia's banking industry into 10 "anchor" groups in 2001, envisages further consolidation to leave between six and eight banks but has stressed the process would be market driven. - AFP