Aabar’s journey into RHB

WHEN Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd were locked in a fight to wrest control of smaller rival RHB Capital Bhd (RHB Cap) in 2011, there was a lot happening behind the scenes.

Alongside this major takeover bid was the sale of Abu Dhabi Commercial Bank’s (ADCB) 24.9% stake in RHB Cap.

Essentially, two separate things were taking place at about the same time, one the sale of a strategic stake and the other, a full takeover.

The two banking heavyweights were given three months from May 31, 2011 to commence negotiations with RHB Cap at that time.

In the meantime, ADCB’s stake had attracted several suitors, including Japan’s Sumitomo Mitsui Financial Group, a Chinese bank and several private equity firms including the Carlyle Group with bids ranging from two times to 2.5 times the book value of RHB Cap.

However, in June of that year, ADCB sealed a deal to sell its block to sister company Aabar Investments PJSC for RM5.9bil or RM10.80 per share, valuing the bank at a hefty 2.25 times its book value.

According to reports, Bank Negara had imposed that Aabar must support the possible merger of RHB Cap with a local bank at a “market price” that would not weaken the merged entity.

The requirement was an unusual intervention for such a matter, said bankers.

ADCB, a full service bank, bought its block from the Employees Provident Fund (EPF) in 2008 for RM3.87bil or RM7.20 per share, emerging as the second-largest shareholder in RHB Cap.

Following that deal, the EPF, which is the single largest shareholder in RHB Cap, saw its shareholding reduce to 57% from the 82% stake previously.

Under a central bank ruling, the EPF needed to reduce its stake in RHB Cap to 35% by June 2008, but the pension fund had sought permission to keep a 40% stake instead.

The EPF took control of the bank in July 2007 after a bitter corporate battle. Before that, Utama Banking Group was in control for less than four years, taking over from founder of the bank Tan Sri Rashid Hussain in 2002.

Although the ADCB-Aabar deal was largely seen as a left-to-right hand transfer, it had set the floor price for any merger involving RHB Cap.

Aabar is majority-owned by the Abu Dhabi Government investment vehicle, International Petroleum Investment Corp (IPIC).

Aabar had previously held an option to subscribe to equity in the power arm of 1Malaysia Development Bhd (1MDB) that was subsequently extinguished.

This came about after IPIC had provided a guarantee to 1MDB for its US dollar debt papers to the tune of US$3.5bil to help the latter fund the purchases of both the Tanjong and Genting power plants in 2012.

Since 2008, RHB Cap’s shares have traded at an average price-to-book ratio of 1.35 times in the last three years, not coming anywhere close to the 2.2 times book value the Abu Dhabi funds paid.

The sale to Aabar became a dampener in the proposed merger bid as at 2.25 times RHB Cap’s book value, it would not be cheap for either CIMB or Maybank to match.

This expensive valuation could have spooked both the banking heavyweights which on June 23, 2011, announced separately that they had ended respective talks on a possible merger with RHB Cap.

Valuation has been a contentious issue between the substantial local and foreign shareholders, as was in the case of Hong Leong Bank Bhd’s (HLBB) takeover of the EON banking group from EON Capital Bhd (EON Cap).

Local shareholders of EON Cap had accepted HLBB’s tabled offer of RM7.30 a share or 1.24 times book value (as at end March 2011), while Hong Kong-based private equity firm, Primus Pacific Partners, rejected the offer which it deemed as “undervaluing” the group.

Primus had paid RM9.55 per share or RM1.34bil when it bought a 20% stake in EON Cap in 2008. The matter was left to the courts to settle.

Similarly, in the recent three-way merger between RHB Cap, CIMB and Malaysia Building Society Bhd, Aabar was also viewed as the stumbling block, given its big block of shares.

It was widely reported that the fund was seeking a higher price of RM12 per share for its shares in RHB Cap.

Aabar’s current stake in RHB Cap stands at 21.09%, while the EPF has 41.6%.

With the EPF being barred from voting in that merger, Aabar’s voting rights would have supposedly increased to around 36%, while RHB Cap’s third-largest shareholder, OSK Holdings Bhd, would have 17% voting rights. The merger was called off in January this year.

But with the latest development prohibiting the fund from exercising its voting rights in the bank to anything above 15%, the Aabar factor in RHB Cap has weakened.

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