RHB Capital Bhd. (RHBC) surged to a 14-year high after CIMB Group Holdings Bhd. (CIMB) and Malayan Banking Bhd. (MAY) won central bank approval to begin separate merger talks, triggering a battle to potentially create Southeast Asia’s biggest bank.
The Kuala Lumpur-based lender jumped 7.4 percent to 9.90 ringgit at the 5 p.m. close in Kuala Lumpur trading, its highest close since March 1997. With a market value of 21.7 billion ringgit ($7.2 billion), this would be the biggest banking deal in the Asia-Pacific region in the past three years, according to data compiled by Bloomberg.
Maybank, as the nation’s largest lender is known, and CIMB, headed by the prime minister’s brother, aim to cement their dominance as the central bank grants more licenses to overseas lenders including Bank of China Ltd. Smaller rival Hong Leong Bank Bhd. last month bought EON Capital Bhd., and ECM Libra Financial Group Bhd. is said to be seeking a buyer.
“Potentially, this could lead to a bidding war for RHB,” said Jason Chong, who helps manage about $1 billion of assets as chief investment officer at Manulife Asset Management (Malaysia) Sdn. in Kuala Lumpur. “The merger of RHB and CIMB would make more sense because with Maybank, there will be a lot more duplication of assets in terms of branches.”
The combined capitalization of CIMB and RHB would be $27.3 billion, based on yesterday’s closing prices. Maybank could boost its market worth to $28.8 billion, which would exceed the $27.7 billion value for Singapore’s DBS Group Holdings Ltd. (DBS), Southeast Asia’s largest lender.
“Size matters in banking,” said Azman Mokhtar, managing director of Khazanah Nasional Bhd., CIMB’s biggest shareholder. “As long as it is value-creating, we are generally supportive,” he told reporters in Kuala Lumpur today.
RHB was overtaken last month as Malaysia’s fourth-biggest lender by assets following Hong Leong’s takeover of EON. RHB has operations spanning all key areas of financial services, including a branch network, treasury, investment banking and Islamic finance.
CIMB temporarily overtook Maybank as the country’s biggest company by market value last year. Its shares have risen 179 percent over the past five years, compared with a 15 percent increase in Maybank’s stock. Maybank’s shares fell 1.6 percent to 8.77 ringgit today, while CIMB dropped 0.3 percent to 8.35 ringgit.
“In the past big players like Maybank thought that it didn’t make much sense to acquire the bank next door because there’d be overlapping of customers,” Ang Kok Heng, who oversees $292 million as chief investment officer at Phillip Capital Management Sdn., said in a telephone interview. “The strategy now is different whereby they want to build up a bigger asset base, which will put them in a better position to compete for overseas financing mandates.”
RHB’s board will meet to discuss Maybank and CIMB’s interest, the bank said in an exchange filing today. State-owned Employees Provident Fund is RHB’s biggest shareholder with a 45 percent stake, followed by Abu Dhabi Commercial Bank PJSC (ADCB), which holds 25 percent.
Abu Dhabi Commercial wants to sell its RHB stake and has appointed Goldman Sachs Group Inc. (GS) and Bank of America Corp.’s Merrill Lynch & Co. to advise on an exit, Chief Executive Officer Ala’a Eraiqat said in April.
It may sell the stake to its sister company Abu Dhabi Investment Council after receiving bids from Japan’s Sumitomo Mitsui Financial Group Inc. (8316), an unidentified Chinese bank and several private equity firms including Carlyle Group, the Star reported today, citing an unidentified person.
Abu Dhabi Commercial’s planned sale probably helped kick start the latest round of consolidation among banks in the Southeast Asian nation, said Scott Lim, who manages the equivalent of $470 million of assets as chief executive officer of Kuala Lumpur-based MIDF Amanah Asset Management Bhd.
An RHB merger would spur consolidation among smaller Malaysian banks, Lim said in a phone interview today. “Either you stay as a niche bank or you’d better be merging,” he said. “If you just want to be a second-tier bank, you’d be obsolete very soon.”
An RHB merger “would be consistent with Maybank’s vision to become the regional financial services leader,” Maybank said in an e-mailed statement yesterday.
To help maintain its lead, Maybank has bought bank stakes in Indonesia, Pakistan and Vietnam. Last month, it completed the S$798 million ($648 million) acquisition of a 44.6 percent stake in Kim Eng Holdings Ltd., a Singapore-based securities and investment-banking group.
CIMB plans to “put forward a value-creating merger” and “support the national banking consolidation agenda,” Nazir Razak, group chief executive officer, said in a statement yesterday.