Banking  Sector  :  Based  on  Bursa’s  announcement  yesterday,  CIMB Group  (CIMB),  RHB  Capital  (RHBCap)  and  Malaysia  Building  Society Berhad (MBSB) had requested for the suspension of their securities on 9 Oct-14 pending a material announcement. Meanwhile, as reported by The  Edge  Financial  Daily,  the three entities  have jointly  submitted  the proposed merger plan to Bank Negara, a move which had now enabled the group to extend the 90-day exclusivity period. The proposal included their  business  plans,  integration  plans,  salient  terms  of  the  sale  and purchase  agreement,  though  there  could  still  be  revisions  and  further due diligence. (Source: Media)

Comments:  In  our  view,  the  success  of  the  merger  boils  down  to  two key  factors,  i.e.  sufficient  shareholder  support  as  well  as  Bursa’s decision  on  allowing  the  EPF  to  vote  for  the  proposal,  given  that  it  is deemed a related party transaction. EPF vote is crucial as it will improve the chances for the deal to go through. Currently, the EPF holds 41.5% in RHBCap, 64.6% in MBSB and 14.6% in CIMB. Should the EPF not allowed  to  vote  by  Bursa,  Aabar  Investments  which  currently  holds 21.2%  in  RHBCap,  will  see  its  voting  rights  increase  to  36.2%.

In  the meantime, speculation remains rife that RHBCap will be taking the lead in  the  merger  process  (instead  of  CIMB)  and  will  see  the disposal/merger  of  the  Islamic  Banking  entities  of  RHBCap  and  CIMB with MBSB. This is also further reinforced by RHBCap’s recent move to raise a USD300m 5-year senior unsecured notes (rated A3 by Moody’s and  BBB+  by  S&P’s),  which  was  completed  on  3  Oct-14  under  a USD5bn Euro MTN Programme.

Source: Affing Hwang Capital Research - 9 Oct 2014