By Jahabar Sadiq
Editor
The Malaysian Insider
Jun 19, 2011
KUALA LUMPUR, June 19 — Several new Bank Negara conditions are threatening the RM5.9 billion sale of a 25 per cent stake in RHB Capital Bhd between two Abu Dhabi sister firms, including the requirement that the new shareholder must support a possible merger with another Malaysian bank.
Two other puzzling requirements by the central bank is the request for Abu Dhabi Commercial Bank (ADCB) and new RHB shareholder Abu Dhabi investment fund Aabar Investments to adjust the sale price if the merger price is lower than the RM10.80 per share price agreed by both companies and the merger must not deviate too far from the market price so as to weaken the merged entity.
The Malaysian Insider understands that after the deal was signed on Friday, Bank Negara sent a series of harsh emails to to ADCB telling them to state the conditions imposed by the central bank in their press releases, which some bankers say is an aggresive and unusual intervention for such a matter.
The country’s two biggest banks — CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) — have won separate Bank Negara approval to begin competing merger talks with Malaysia’s fourth biggest lender RHB Capital, triggering a takeover battle that may create Southeast Asia’s biggest bank. CIMB, led by by Datuk Seri Nazir Razak, is the front-runner for the deal.
“This should be a free market transaction. Why the need for the strange conditions,” a banker told The Malaysian Insider on condition of anonymity.
“Bank Negara should also allow the new shareholders to decide if they want to support a merger or not. We don’t need a nanny state in banking,” he added.
He pointed out that Prime Minister Datuk Seri Najib Razak could come under attack from the market given that the administration has been advocating for a liberalised financial services market with minimum state supervision.
Najib, who is also Finance Minister, witnessed the ADCB stake sale to Aabar on Friday with the Crown Prince of Abu Dhabi, General Sheikh Mohammed Zayed Al-Nahyan, who was on a day visit to Kuala Lumpur.
But sources say Bank Negara has imposed the conditions as it does not want any of the competing banks to be weakened financially by the merger, the biggest in the country if RHB Capital’s main shareholder, the Employees Provident Fund (EPF), decides to sell its 44 per cent stake.
The central bank is concerned by the RM10.80 per share purchase by Aabar Investments which is valued at 2.25 times price-to-book (PB) value although it is learnt that ADCB had received bids between 2.0 and 2.4 times PB when it conducted an open tender. But bankers say the sale is occurring during a boom, pointing out that CIMB itself purchased Southern Bank at 2.2 times PB in 2006 when the banking industry was weaker.
“We are talking big money here but if either CIMB or Maybank can’t afford to buy RHB, then they should stay out. This is what a free market is,” another banker familiar with the deal told The Malaysian Insider.
The Malaysian Insider understands that EPF officials will ask Putrajaya to ensure that the bidding process is fair and transparent, and without undue interference. Top EPF officials know that they will be attacked by opposition politicians and stakeholders if they do not get the best price for the merger.
More than 12 million local workers, Malaysians and foreigners, have accounts in EPF, the country’s largest pension fund that has always been criticised for low dividends despite rising income from its investments.
“EPF cannot compromise on this and be forced to sell at a low price just because it involves two other Malaysian investors, CIMB’s parent Khazanah Nasional Berhad and Maybank’s main shareholder Permodalan Nasional Berhad,” an investment source told The Malaysian Insider.
Analysts have said the RHB Capital takeover could be based on a price to book value of 2 to 2.5 times which will work out to between RM9.70 and RM12 per share. Based on RHB’s share base of 2.2 billion shares, any investor buying EPF’s entire stake would have to pay up to RM26.3 billion.