CIMB, RHB and Malaysia Building Society to seek merger and become Malaysia’s biggest bank , says report

Datuk Seri Nazir Razak is the CIMB group chief executive. The bank, RHB Capital and Malaysia Building Society are seeking permission from Bank Negara to carry out a corporate exercise that will result in a mega bank. – The Malaysian Insider pic, July 10, 2014.Trading in three financial institutions has been suspended as they work to merge and form Malaysia's biggest bank, the Star reported today.

RHB Capital Sdn Bhd, Malaysia Building Society Bhd and CIMB Group Holdings Bhd told Bursa Malaysia separately yesterday that their trading would be suspended today.

The Star reported that the three financial institutions would write to Bank Negara to seek permission to commence a corporate exercise which would result in a mega bank.

This mega bank is expected to have a market capitalisation of more than RM90 billion, assuming the deal is concluded at about 1.7 to 1.75 times book value.

“The deal is likely to be done at 1.75 times book value based on CIMB’s current valuation of almost 1.70 times book. It is unlikely to be transacted at anything less,” a source told the Star.

At 1.75 times book value, RHB Cap would have a market capitalisation of about RM30bil, while MBSB’s total capitalisation would be about RM6.8bil.

“Together with CIMB’s market capitalisation, the merged entity would fetch a market value of more than RM90bil,” the source told the Star.

The Employees Provident Fund (EPF) will play a significant role in this merger because it has significant stakes in all three entities.

It is the major shareholder in RHB Capital with a 40.76% stake. The other major shareholders of RHB Capital are Aabar Investments PJSC with a 21.43% stake and OSK Holdings Bhd with a 9.91% stake.

The EPF has a 64.73% stake in MBSB and 14.46% in CIMB.

The eventual merger will see the EPF emerge as the largest shareholder in the mega bank, with a stake estimated to be more than 25%.

RHB Capital and CIMB each closed four sen lower at RM8.72 and RM7.24 respectively, while MBSB ended 12 sen higher at RM2.34 at yesterday’s market close.

The Star quoted sources as saying that the impending merger had been a well-kept secret with few people having knowledge of the deal.

"News of a merger between RHB Capital and MBSB was already out in the market in the afternoon, but CIMB entering the fray caught most people by surprise,” a source told the Star.

When the market closed and the announcements came out, it became apparent that the creation of Malaysia’s largest bank was in the making.

At the close yesterday, CIMB was trading at 1.70 times book value, RHB Capital at 1.29 times book value and MBSB at 1.60 times book value.

The Star quoted sources as saying the exercise would possibly involve a share swap between CIMB and RHB Cap at a book value of 1.75 times and an outright buyout of MBSB.

MBSB is a building society whose loans are mainly for residential loans and commands a lesser premium.

“But it is probably one of the most profitable financial institutions and has the fastest growing balance sheet.

"This is evident from the returns it has given to its shareholders in the last two years,” an analyst told The Star.

A merger of the three financial institutions will result in a bank with the largest asset base, market capitalisation and earnings based on the latest published numbers.

Based on latest figures, the merged entity’s asset size is expected to be more than RM600 billion and combined profits based on its last financial year will exceed RM7 billion.

It will surpass that of Malayan Banking Bhd (Maybank) that has a market capitalisation of RM91.1 billion currently and asset size of RM578 billion as of March 31 this year.

- TMI