RHB Capital Bhd., Malaysia’s fifth-biggest banking group, may issue stock to pay for OSK Holdings Bhd.’s investment bank, three people with knowledge of the matter said.
RHB may issue new shares equivalent to as much as 10 percent of its existing equity to pay for the unit, said the people, who declined to be identified as talks are private. That would value the transaction at as much as 1.63 billion ringgit ($514 million), based on RHB’s Nov. 18 closing price.
Buying OSK Investment Bank Bhd. would allow RHB to overtake CIMB Investment Bank Bhd. as the biggest stockbroker in Malaysia, based on data from the country’s exchange. RHB Chief Executive Officer Kellee Kam Chee Khiong last week told local newspaper The Star that he expects to complete the deal by mid-December.
Paying in shares “will ensure that the OSK management will stay on and have a stake in the merged business,” said Ng Wee Siang, an analyst at BNP Paribas Securities. “The most critical aspect would be how the new shares are priced. If they do it at the current market price, it would be dilutive for RHB.”
RHB shares gained 1.5 percent to 7.40 ringgit at the 12:30 p.m. trading break in Kuala Lumpur, while OSK rose 1.1 percent to 1.79 ringgit.
Mahanum Shariff, head of group corporate communications at OSK Holdings, declined to comment on the transaction. Kam was at a meeting and not immediately available, his secretary said.
Kuala Lumpur-based OSK Holdings and RHB Capital said in October they received central bank approval to start negotiations to combine their investment banking businesses. The approval is valid for three months, they said at the time.
The deal follows two earlier failed attempts by RHB to merge. In June RHB broke off separate talks with Malayan Banking Bhd. and CIMB Group Holdings Bhd., the country’s two largest banks, and said it would focus on expanding on its own. Talks with the two rivals collapsed after Abu Dhabi’s Aabar Investments PJSC bought a stake in RHB at an above-market price, pushing up the cost of a takeover. Shares in RHB have dropped 25 percent since June 1.
Aabar Investments, owned by the Abu Dhabi government, said on June 17 it would pay 10.80 ringgit per share for a 24.9 percent stake in the Malaysian lender.
OSK Holdings has offices in Kuala Lumpur, Singapore, Hong Kong, Shanghai, Phnom Penh and Jakarta, according to its website.
The bank reported profit fell to 28.8 million ringgit in the third quarter from 33.6 million ringgit a year earlier. OSK Investment Bank Berhad accounted for 85 percent of the group’s pretax profit in the first nine months of the year, according to its financial statements.