Malaysia mega-merger seeks central-bank approval

By:
Rob Hartley
Published on:

Malaysia gears up for consolidation in its financial sector as the three-way deal moves ahead.

CIMB

The three-way merger of CIMB Group, RHB Capital and Malaysia Building Society (MBSB) has taken a leap forward after the firms applied to the Malaysian central bank for approval on the deal.

The companies have spent the past few months discussing "pricing, structure and other relevant terms and conditions", but are now seeking a rubber-stamp from Bank Negara Malaysia on the tie-up. 

The planned new organization is widely expected to become a force in the southeast Asian banking world and trigger some consolidation at home and abroad.

"We are extremely pleased to have been able to reach this stage in the process," says Tengku Dato’ Zafrul Tengku Abdul Aziz, acting group chief executive, CIMB Group, in a company statement. 

"This exercise will cement CIMB Group’s position amongst the top banks in Asean and bring a host of value creation opportunities for all our stakeholders. We are excited that we can now move forward and work towards seeking the necessary approvals to effect this merger."

Spark consolidation

The three-way merger is likely to spark consolidation in the Malaysian market and might force regional players in countries such as Singapore and Indonesia to assess their own strategies in light of the deal, Euromoney previously reported. 

The trend for consolidation in the Asia-Pacific banking sector has been running for some time, with markets such as Hong Kong, Korea and Taiwan seeing movement in mergers and acquisitions in recent times.

Kellee Kam, RHB Capital Group managing director, says: "I am glad that we have been able to come this far in our negotiations in such short a time. The RHB Banking Group has enjoyed tremendous progress in the last few years, seeing us grow from strength to strength. 

"This merger is a natural step in our growth story, enabling us to become a regional financial powerhouse via the merged entity. The task ahead for us now is to ensure that we meet all the expectations of our stakeholders, thereby creating new opportunities for our employees, enhanced services and product offerings for our customers, and increasing returns and value for our shareholders."

The merger share swap involves an exchange ratio of 1 RHB Capital share for 1.38 CIMB Group shares based on a benchmark price of RM 7.27 per CIMB Group share and RM 10.03 per RHB Capital share. CIMB Group shareholders will own 70% of the merged CIMB-RHB Group and RHB Capital shareholders the remaining 30%. 

All told, it would be a significant and positive development
to the Malaysian and regional financial sector

Tat Chung Wong

A mega-Islamic bank will be formed from the merging of CIMB Islamic, RHB Islamic and MBSB at a price of RM 2.82 per MBSB share, and MBSB shareholders will have the option of receiving cash or CIMB Islamic shares as consideration.

The merger is just the latest building block in the ever-increasing influence of the Malaysian financial industry, according to some, and could lead to an enhanced position for the new organization within the Asean region.

"Malaysian financial institutions have over time increased their size and reach through mergers, augmenting their financial strength and competitiveness overseas," says Tat Chung Wong, partner, at Malaysian law firm Wong, Beh & Toh. 

"The proposed merger of CIMB Group Holdings Berhad and RHB Capital Berhad and of the Islamic Banks, CIMB Islamic Bank Berhad, RHB Islamic Bank Berhad and Malaysia Building Society Berhad follow these trends. If the transactions are approved by the authorities and proceed, it would result in CIMB enhancing its position among the top banks in Asean and the creation of a mega-Islamic bank, cementing further, Kuala Lumpur as a leading Islamic financial centre. 

"All told, it would be a significant and positive development to the Malaysian and regional financial sector."

Keenly watching

The mega-Islamic bank that is set to emerge from the deal will further boost Malaysia’s credentials as one of the world’s foremost centres of Islamic finance. Islamic finance competitors in the Middle East will be keenly watching the development of the merger in the knowledge that a new competitor is likely to emerge on to the scene of the fledgling industry. 

Along with Malaysia, global financial centres such as London and Hong Kong have also been keen to position themselves as natural homes for Islamic finance. However, the proposed merger means Malaysia is building even stronger credentials as a place to do business in the Islamic finance sphere.

"The strategic rationale for the merger and the subsequent creation of a mega-Islamic bank is clear and we’re focused on getting this to the finish line," says Dato’ Ahmad Zaini bin Othman, president and chief executive officer of MBSB. "This move charts another significant milestone in the history of MBSB since its inception and we are happy to be part of this corporate exercise."

Much of the consolidation across the Asia-Pacific region has been driven by the regulatory environment, with authorities keen to both protect the industries from foreign players and also give a boost to local champions.

The deal is expected to complete in mid-2015.