CIMB-RHB banking merger leads the pack: The biggest corporate deal in Malaysia this year was the plan to merge CIMB Group Holdings Bhd with two smaller rivals - a deal which was also one of the market’s best-kept secrets. While speculation of a merger between RHB Capital Bhd (RHB Cap) and Malaysia Building Society Bhd (MBSB) was not new, CIMB entering the fray caught the market by surprise. And when the three stocks were simultaneously suspended on July 10, it was apparent that the creation of Malaysia’s largest bank and a major Asean financial powerhouse was in the making. Notably, the speed at which the three institutions received the approval of the central bank is a sure sign that the regulator is agreeable to the merger. The merged entity will have combined assets estimated at RM613.7bil, a market value of close to RM90bil and be able to generate profits of close to RM7bil when concluded. This will surpass the country’s current largest bank – Malayan Banking Bhd – which had an asset size of RM578bil as of March 31. The key driver in the merger process is without doubt Datuk Seri Nazir Razak, the long-time CIMB chief executive officer (CEO) who rose to the chairman position this year. Under Nazir’s stewardship of 15 years, CIMB has grown into one of Malaysia’s most respected financial institutions and extended the group’s footprint into the region. Today, it has a presence in Brunei, Cambodia, Indonesia, Myanmar, Thailand and Singapore, as well as Bahrain, Hong Kong, London, Mumbai, New York, Seoul and Sydney. Another key driver is Datuk Shahril Ridza Ridzuan, the CEO of the Employees Provident Fund (EPF), which is the common major shareholder in all three parties. The merger structure entails CIMB, which is the second-largest banking group in Malaysia, disposing its assets and liabilities to RHB Cap via a share swap, at an exchange ratio of one RHB Cap share for 1.38 CIMB shares. The swap values one CIMB share at RM7.27 while pricing RHB Cap shares at RM10.03 apiece. This, in turn, translates into a price-to-book value (P/BV) ratio of 1.7 times and 1.44 times for CIMB and RHB Cap, respectively. The second part of the deal involves the proposed merger of CIMB Islamic, RHB Islamic and MBSB to create a mega-Islamic bank. This newly created mega-Islamic bank will remain a subsidiary of the merged CIMB-RHB. Under this deal, CIMB Islamic will acquire all the assets and liabilities of MBSB at RM7.8bil, or RM2.82 per share. MBSB shareholders will have a choice to either accept cash or new shares in the unlisted CIMB Islamic group. The proposed deal has its fair share of challenges. For one, Press reports have indicated that Abu Dhabi’s sovereign wealth fund Aabar Investments PJSC, which owns a 21.2% stake in RHB Cap, is seeking a higher value of its equity in the latter. Some reports have stated that Aabar would only be satisfied with an RHB Cap value of around RM12 per share. Aabar had bought its 21.2% stake in RHB Cap from Abu Dhabi Commercial Bank PJSC for RM10.80 a share in 2011. But that was a deal between two companies with a common shareholder and not seen as commercially-driven. With such a big block of shareholding in RHB Cap, Aabar has a significant vote on the deal. A related and hotly debated issue is whether the EPF should be allowed to vote as a shareholder of RHB Cap. As a large investor in all three banks, the EPF is deemed as a conflicted party, and thereby, not entitled to vote as per Bursa Malaysia’s rules. In seeking to exercise its voting rights, the EPF said its vote was critical to protect the interest of its 14 million members. The pension fund is RHB Cap’s and MBSB’s majority shareholder, with 40.9% and 64.6%, respectively. It also holds a 14.6% stake in CIMB Group. On Oct 21, Bursa Malaysia ruled that the EPF could not vote in the proposed merger, as it was a common shareholder in all three institutions, giving rise to a potential conflict of interest. The EPF subsequently made an appeal via RHB Cap and MBSB, but this was dismissed by Bursa on Dec 10. With the EPF excluded, the attention has turned to Aabar, which will hold 36.3% of the RHB Cap shares that are eligible to vote. But because RHB Cap is the acquiror, it only needs to gain the approval of 50% of its shareholders to see the transaction through. Consequently, this reduces the influence of Aabar on determining the deal. Nazir is confident that the merger would go through without the EPF’s participation when the business plan is presented at the upcoming shareholders’ meeting. “At the end of the day, it is a merger with no cash but a share swap, and in any fundamental case, we have to see the value of the resultant entity. We have to convince shareholders that the merger of two or three banks will be better than the business we have today,” he has been quoted as saying.
Posted on: Sun, 28 Dec 2014 11:01:00 +0000
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