In a twist, RHB now eyes CIMB

KUALA LUMPUR, July 1 — RHB Capital Bhd has turned hunter and is now seeking to take control of CIMB Holdings Bhd to create Southeast Asia’s largest bank, just a week after a mega-merger was called off due to the high prices involved in the deal.

The Singapore Straits Times reported today RHB Capital, the target of a takeover bid by Malayan Banking Berhad and CIMB a few weeks ago, is planning a bid that will create a financial institution with a market value of roughly RM86 billion.

Banking sources confirmed the bid with The Malaysian Insider, saying RHB’s main shareholders — the Employees Provident Fund (EPF) and Aabar Investments — are more than ready to fund the proposed deal. EPF has some RM440 billion in total assets.

“It will be an all-cash bid. CIMB’s main shareholder Khazanah Nasional Berhad can walk away with nearly RM20 billion if they accept the deal,” a source told The Malaysian Insider, explaining that the CIMB brand name will be used if the deal goes through.

“They are offering 2.5 to 2.7 times the book value,” he added, noting that both EPF and Aabar have deep pockets to fund the buyout.

Another source said the RHB merger plan is to create one of the biggest Islamic banks in the world, considering the interest and also CIMB’s wide network throughout Southeast Asia. It is learnt that over time, the deal will allow EPF to move its loan book to the merged CIMB-RHB banking group.

“This could work as Putrajaya already has a plan to divest government-linked companies (GLCs),” he said.
Prime Minister Datuk Seri Najib Razak is to announce another slew of economic reforms and initiatives on July 5 and officials said it includes public finance reforms and details of government-linked investment companies divesting or listing companies in their stable.

It is understood that the RHB offer has the blessings of Putrajaya as it allows them to get direct cash from EPF instead of asking for loans from the country's largest pension fund.

Churchill Capital analyst Justin Tang said the RHB move was surprising.

“This is quite a surprising move seeing that barely a week ago RHB Capital said they will be fine on their own,” he told The Malaysian Insider.

Under Nazir, CIMB has established a solid regional financial franchise. — File pic

The Straits Times said RHB, EPF and CIMB executives were not available for comment, but one senior financial executive who was involved in the just-aborted takeover bid for RHB said EPF officials have “floated the idea with the government, and it has some legs”. “The push is still for consolidation of the (banking) sector, and this is one of the options that are being considered,” the Straits Times was told by one senior government official familiar with the situation, who added no timeframe had been set for the proposed deal.

But there are also hurdles, the newspaper said, noting that such a deal would need the sanction of CIMB’s main shareholder, Khazanah Holdings, the country’s premier state-owned strategic investment arm.

CIMB, under the leadership of Datuk Seri Nazir Razak, Najib’s younger brother, has established a solid regional financial franchise. It is Khazanah’s core investment and also its biggest success story, bankers note, and going through with the deal would mean letting go of an asset that still has good potential for growth, the paper said.

“The Nazir-led management at CIMB enjoys strong loyalty among foreign institutional funds, which own nearly 40 per cent of the bank’s shares.

But sources told The Malaysian Insider that Nazir will play a huge role in the new banking group if EPF’s plans pan out.

“Nazir will be heading the world’s biggest Islamic bank. Now it’s just a matter of ego. He is being bought out by new bosses, not the other way round,” a source noted.

But the Singapore paper said there could be hurdles to the deal.

“The potential criticism could be that the deal would be transferring EPF funds to make it more accessible to the government. Otherwise, this deal is doable,” said a Singapore-based investment banker who has close links with Malaysian bankers and government officials.

Malaysia has long pushed for the consolidation of its banking sector, and several rounds of mergers that began in 1998 have helped reduce the number of lenders in the country to 10 currently, from a high of 54 institutions.

CIMB and Maybank scrapped separate plans last week to acquire RHB due to a separate transaction involving a block of RHB shares between two Abu Dhabi state concerns, which complicated the deals.
Apart from its 48 per cent ownership in RHB, EPF also controls a 12 per cent interest in CIMB.