Deal Is Pulled as Conditions Deteriorate
HONG KONG—A plan to merge three Malaysian banks to create one of Southeast Asia’s biggest lenders has collapsed, two people familiar with the matter said Tuesday, after the deal was hit by falling share prices as well as the lack of cost savings.
Under a plan first announced in July last year, Malaysia’s second-largest and fourth-largest banks by assets, CIMB Group HoldingsBhd. and RHB Capital Bhd., would have merged with smaller lenderMalaysia Building Society Bhd. through a share swap to create an entity with assets of about $183.1 billion.
But Malaysia’s deteriorating economy, as well as falling share prices at the three banks and lack of cost savings, hurt the deal. Shares of CIMB have fallen more than 20% since the terms of the merger were announced on Oct. 9., while RHB has fallen more than 10% and Malaysia Building Society is down over 7%.
“It is basically not happening…we could not come to the right synergy levels,” said one person with direct knowledge of the deal, adding that “market sentiment” toward the country had also deteriorated.
Plummeting oil prices are already dimming prospects for growth in Malaysia, Asia’s largest oil and gas exporter. The recent delay by a state fund for the second time of a $560 million loan repayment has added to the negative sentiment toward the country. 1Malaysia Development Bhd., one of the country’s numerous state firms charged with developing the economy, was slated to repay the loan to a group of Malaysian banks in December following an extension from an original deadline the previous month.
An RHB spokeswoman said there was “no further development in relation to the merger at this juncture.” A merger would have helped CIMB 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. Malaysia is home to 27 local and foreign lenders with thousands of branches competing for business.
It would also have created a force in Islamic finance, which prohibits charging interest in transactions and has become an over-$2 trillion global industry, including Islamic bonds or sukuk. With non-Muslim financial centers such as Hong Kong, London and the U.S. making a push into Islamic finance, the deal would have extended Muslim-majority Malaysia’s lead in Islamic finance.
The new Malaysian bank would have been Southeast Asia’s fourth largest after three Singapore banks— DBS Group Holdings Ltd. ,Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. Singapore’s banks have also been on an expansion spree throughout Asia in the past few years, bulking up especially in areas such as wealth management, as they look for growth beyond the small city-state.
Malaysia’s state-owned Employees Provident Fund owns 16.9% of CIMB, 41.3% of RHB and 64.7% of the Malaysia Building Society, though the fund wasn’t allowed to vote on the merger. Malaysian state investment company Khazanah Nasional Bhd. is the single largest shareholder in CIMB with a 28.3% stake.
Under the proposed deal, shareholders were to receive one RHB share for every 1.38 CIMB share they own. CIMB shareholders would have owned 70% of the combined CIMB-RHB entity and RHB shareholders were to have the rest. At the same time, the Islamic units of CIMB and RHB would have merged with Malaysia Building Society to form the subsidiary.
Originally published on www.wsj.com