RHB Capital, Malaysia’s fifth largest lender, remains open to merger opportunities if the price is right, its chief said after two larger rivals scrapped plans to acquire it in a bid to create South-East Asia’s biggest bank.
RHB was earlier pursued by Maybank and CIMB, Malaysia’s top two lenders, and is expected to remain in the spotlight despite the failed bids as the authorities encourage consolidation to create bigger banks with the muscle to grab regional market share.
A potential merger with Maybank, CIMB or other lenders could be considered if valuations are right, RHB group managing director Kellee Kam told Reuters.
“We are happy with RHB’s standalone strategy, but if opportunities for M&A exist that outweigh a standalone strategy, then it’s something that can be evaluated,” Kam said.
“As we understand it, they (CIMB and Maybank) believed they couldn’t put together a compelling enough proposition for us to be able to continue our discussions.”
CIMB and Maybank called off separate merger plans with RHB last month after Abu Dhabi Commercial Bank sold its 25% stake in RHB to its sister company Aabar at RM10.80 per share.
The RM10.80 price tag effectively prices RHB at RM23.7bil, or 2.25 times book value. Analysts said Aabar’s transacted price had set a benchmark for any potential merger deal, which could have deterred Maybank and CIMB.
But a banker involved in the earlier merger discussions told Reuters the share sale to Aabar had not been completed with the Abu Dhabi investment fund yet to be registered as an RHB shareholder.
All conditions of the sale agreement have been met but as the shares have not been transferred from Abu Dhabi Commercial Bank meant that the final sale price could still change, the banker, who was not authorised to speak to the media, said.
“If the deal happens at a lower price, the banks can probably look at it again,” the banker said. “It can be resurrected. It’s all about the valuation.”
Kam said a change in the price was a possibility although RHB was presently not in discussions with anyone.
An analyst who declined to be named said it was “very likely” that Aabar and Abu Dhabi Commercial Bank would change the price.
“It’s very likely though it’s not official yet,” the analyst said. “RHB has yet to make an announcement on the change in shareholding, but it will probably be done soon to facilitate a merger.”
Kam said he was keen on the idea of turning RHB into a strong regional bank on par with Singapore’s top lenders, which are larger than the biggest Malaysian banks, but the value from a merger would have to outweigh the opportunity cost of all stakeholders.
The market value of Singapore’s three largest banks DBS Group, OCBC and UOB Ltd are US$28bil, US$26bil and US$25bil respectively, compared with Maybank and CIMB’s market value of US$22.2bil and US$22bil.
Kam also denied that RHB was looking to turn the tables on CIMB to acquire the latter as reported by the Singapore Straits Times last week.
“The challenges of trying to do that (buy CIMB) are insurmountable. From a value creation standpoint, how do you create value with a deal like that?” he said.
Kam said the cost of acquiring CIMB, which has a market value of almost US$22bil, would have stretched RHB’s books to the very limits, even though its major shareholders the Employees Provident Fund and Aabar Investments have deep pockets.
Increasing competition from smaller financiers and foreign banks is heaping pressure on Malaysian banks to consolidate or risk seeing thinning net interest margins – the difference between what banks make from loans and what they pay out to depositors – fall even further.— Reuters
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