Three Malaysian banks in merger talks
Three Malaysian banks, including CIMB Group Holdings, said on July 10 that they are in merger talks, which, if successful, would create the country’s biggest lender and one of the largest in Southeast Asia, The Wall Street Journal reported.
CIMB, which is run by the brother of Malaysia’s prime minister, along with RHB Capital and Malaysia Building Society, said they received approval from the country’s central bank to initiate the talks.
A merger would help CIMB, Malaysia’s second-biggest bank by assets, leap to the top of the country’s crowded banking market, while creating a megabank that would rank among Southeast Asia’s top-five lenders by assets.
Banks have been jostling to expand through acquisitions in fast-growing Southeast Asia, home to more than 600 million people and a rising middle class. These banks have also been looking to take on bigger rivals throughout the wider Asian-Pacific region that lead in lending and advisory work.
Singapore’s DBS Group Holdings, which failed to complete a multibillion-dollar takeover of an Indonesian bank last July, bought the Asian private-banking unit of France’s Société Générale in March. Singapore’s Oversea-Chinese Banking Corp. is close to completing a deal to buy Hong Kong family-owned lender Wing Hang Bank.
“There is a prima facie case for a value-creating merger between the three entities and we want to get into detailed discussions to validate it,” CIMB Chief Executive Nazir Razak said in a joint news release.
Nazir is set to step down as CEO in September and become the bank’s chairman.
One of the options being discussed is a share issue by CIMB to the shareholders of the other two banks, a person with knowledge of the process said, although minority shareholders of RHB and Malaysia Building Society could be given a cash option as well.
The joint statement didn’t provide financial details on the possible merger, but said that the three banks have entered into a 90-day exclusivity agreement to negotiate the pricing and structure of the deal, among other terms. The exclusivity period could be extended, the statement said.
Malaysia’s state-owned Employees Provident Fund, or EPF, which owns 16.9 per cent of CIMB, 41.3 per cent of RHB and 64.7 per cent of the Malaysia Building Society, said talks were “very preliminary in nature.” A spokesman at the fund gave no further details. Malaysian state investment company Khazanah Nasional Bhd. is the single largest shareholder in CIMB with a 28.3 per cent stake.
Abu Dhabi’s Aabar Investments PJS holds a 21.4 per cent stake in RHB. Aabar, majority-owned by the Abu Dhabi government’s International Petroleum Investment Co., couldn’t be reached for comment.
The CIMB-led merger would create an entity with total assets of $183.1 billion and a market value of around 90 billion ringgit ($29 billion), based on their Kuala Lumpur-listed stocks. Shares of the three banks were suspended from trading on Thursday and will resume on Friday.
If the deal goes through, CIMB would become Malaysia’s biggest bank, surpassing Maybank, which is also Southeast Asia’s fourth-biggest bank by assets.
CIMB has more than 1,000 retail branches in 17 countries with a staff of more than 40,000, compared with Maybank’s 2,200 branches and offices in 20 countries employing 47,000 people. RHB, which competes with CIMB and Maybank at home and elsewhere, has 800 branches and 18,000 employees around the region. The lesser-known Malaysia Building Society has more than 40 branches providing real-estate financing and corporate loans in the country.
CIMB would also become the region’s biggest bank outside Singapore’s top lenders if the deal happens. DBS, OCBC, and Singapore’s United Overseas Bank are Southeast Asia’s largest banks by assets, and have been aggressively expanding lending outside the city-state in recent years. Singaporean banks’ cross-border loans grew by a compound annual growth rate of 13 per cent between 2009 and 2013, according to analysts at Moody’s Investors Service.
CIMB’s push to take on Maybank would help it solidify its position in a country where competition among lenders for business is fierce, with 27 local and foreign commercial banks in a nation of 30 million people. In fact, in 2011, CIMB and Maybank aborted separate bids for RHB after failing to agree on a price.
Tan Ei Leen, a banking analyst at Kuala Lumpur-based Affin Investment Bank, said the latest potential merger could be “due to the need to further consolidate market share in view of the stiff competition amid a saturation point in the domestic banking environment.”
The tough competition has eroded margins and forced banks to look overseas. In 2012, CIMB bought UK-based Royal Bank of Scotland Group’s cash-equities business in Asia, which expanded its research and sales and trading divisions.
A year earlier, Maybank bought Singapore brokerage firm Kim Eng Holdings Ltd. for $1.4 billion to bulk up its investment-banking business in Southeast Asia.
Around 38 per cent of CIMB’s profit before tax in the first quarter was drawn from overseas operations, namely those in Indonesia, Thailand and Singapore, according to an analysis by J.P. Morgan. CIMB draws around 28 per cent of its profit from its Indonesian unit, CIMB Niaga. By contrast, Maybank drew 33 per cent of its first-quarter profit from overseas.
Southeast Asia has been a hotbed of deal activity by banks for a few years, attracting Japanese banks seeking growth, for instance. In July 2013, Mitsubishi UFJ Financial Group bought a majority stake in Thailand’s fifth-largest bank, Bank of Ayudhya in a deal valued at around $5.6 billion.
Three Malaysian banks, including CIMB Group Holdings, said on July 10 that they are in merger talks, which, if successful, would create the country's biggest lender and one of the largest in Southeast Asia, The Wall Street Journal reported. CIMB, which is run by the brother of Malaysia's prime minister, along with RHB Capital and Malaysia Building Society, said they received approval from the country's central bank to initiate the talks. A merger would help CIMB, Malaysia's second-biggest bank by assets, leap to the top of the country's crowded banking market, while creating a megabank that would rank among Southeast...
Three Malaysian banks, including CIMB Group Holdings, said on July 10 that they are in merger talks, which, if successful, would create the country’s biggest lender and one of the largest in Southeast Asia, The Wall Street Journal reported.
CIMB, which is run by the brother of Malaysia’s prime minister, along with RHB Capital and Malaysia Building Society, said they received approval from the country’s central bank to initiate the talks.
A merger would help CIMB, Malaysia’s second-biggest bank by assets, leap to the top of the country’s crowded banking market, while creating a megabank that would rank among Southeast Asia’s top-five lenders by assets.
Banks have been jostling to expand through acquisitions in fast-growing Southeast Asia, home to more than 600 million people and a rising middle class. These banks have also been looking to take on bigger rivals throughout the wider Asian-Pacific region that lead in lending and advisory work.
Singapore’s DBS Group Holdings, which failed to complete a multibillion-dollar takeover of an Indonesian bank last July, bought the Asian private-banking unit of France’s Société Générale in March. Singapore’s Oversea-Chinese Banking Corp. is close to completing a deal to buy Hong Kong family-owned lender Wing Hang Bank.
“There is a prima facie case for a value-creating merger between the three entities and we want to get into detailed discussions to validate it,” CIMB Chief Executive Nazir Razak said in a joint news release.
Nazir is set to step down as CEO in September and become the bank’s chairman.
One of the options being discussed is a share issue by CIMB to the shareholders of the other two banks, a person with knowledge of the process said, although minority shareholders of RHB and Malaysia Building Society could be given a cash option as well.
The joint statement didn’t provide financial details on the possible merger, but said that the three banks have entered into a 90-day exclusivity agreement to negotiate the pricing and structure of the deal, among other terms. The exclusivity period could be extended, the statement said.
Malaysia’s state-owned Employees Provident Fund, or EPF, which owns 16.9 per cent of CIMB, 41.3 per cent of RHB and 64.7 per cent of the Malaysia Building Society, said talks were “very preliminary in nature.” A spokesman at the fund gave no further details. Malaysian state investment company Khazanah Nasional Bhd. is the single largest shareholder in CIMB with a 28.3 per cent stake.
Abu Dhabi’s Aabar Investments PJS holds a 21.4 per cent stake in RHB. Aabar, majority-owned by the Abu Dhabi government’s International Petroleum Investment Co., couldn’t be reached for comment.
The CIMB-led merger would create an entity with total assets of $183.1 billion and a market value of around 90 billion ringgit ($29 billion), based on their Kuala Lumpur-listed stocks. Shares of the three banks were suspended from trading on Thursday and will resume on Friday.
If the deal goes through, CIMB would become Malaysia’s biggest bank, surpassing Maybank, which is also Southeast Asia’s fourth-biggest bank by assets.
CIMB has more than 1,000 retail branches in 17 countries with a staff of more than 40,000, compared with Maybank’s 2,200 branches and offices in 20 countries employing 47,000 people. RHB, which competes with CIMB and Maybank at home and elsewhere, has 800 branches and 18,000 employees around the region. The lesser-known Malaysia Building Society has more than 40 branches providing real-estate financing and corporate loans in the country.
CIMB would also become the region’s biggest bank outside Singapore’s top lenders if the deal happens. DBS, OCBC, and Singapore’s United Overseas Bank are Southeast Asia’s largest banks by assets, and have been aggressively expanding lending outside the city-state in recent years. Singaporean banks’ cross-border loans grew by a compound annual growth rate of 13 per cent between 2009 and 2013, according to analysts at Moody’s Investors Service.
CIMB’s push to take on Maybank would help it solidify its position in a country where competition among lenders for business is fierce, with 27 local and foreign commercial banks in a nation of 30 million people. In fact, in 2011, CIMB and Maybank aborted separate bids for RHB after failing to agree on a price.
Tan Ei Leen, a banking analyst at Kuala Lumpur-based Affin Investment Bank, said the latest potential merger could be “due to the need to further consolidate market share in view of the stiff competition amid a saturation point in the domestic banking environment.”
The tough competition has eroded margins and forced banks to look overseas. In 2012, CIMB bought UK-based Royal Bank of Scotland Group’s cash-equities business in Asia, which expanded its research and sales and trading divisions.
A year earlier, Maybank bought Singapore brokerage firm Kim Eng Holdings Ltd. for $1.4 billion to bulk up its investment-banking business in Southeast Asia.
Around 38 per cent of CIMB’s profit before tax in the first quarter was drawn from overseas operations, namely those in Indonesia, Thailand and Singapore, according to an analysis by J.P. Morgan. CIMB draws around 28 per cent of its profit from its Indonesian unit, CIMB Niaga. By contrast, Maybank drew 33 per cent of its first-quarter profit from overseas.
Southeast Asia has been a hotbed of deal activity by banks for a few years, attracting Japanese banks seeking growth, for instance. In July 2013, Mitsubishi UFJ Financial Group bought a majority stake in Thailand’s fifth-largest bank, Bank of Ayudhya in a deal valued at around $5.6 billion.
