RHB-AmBank merger fails to take off

PETALING JAYA: RHB Bank Bhd and AmBank Group have scrapped their proposed merger, marking the increasing difficulty in the consolidation of the Malaysian banking sector.

In filings with Bursa Malaysia, both banks said that after much discussion and deliberation, RHB and AmBank Group were not able to reach an agreement on mutually acceptable terms and conditions for the proposed merger. No reasons were given for this but speculation is rife that the merger was not well received by some shareholders of RHB and AmBank.

“There were concerns expressed on several issues from valuations of RHB to contingent liabilities that AmBank could face from the dealings with 1MDB (1Malaysia Development Bhd),” said sources. “Both banks held emergency meetings until late yesterday and decided to call it off.”

Among shareholders of RHB are Aabar Investments PJS, which holds 17.75%, and OSK Holdings Bhd with almost 10%. AmBank’s major shareholder is Australia and New Zealand Banking Group Ltd and Tan Sri Azman Hashim.

RHB’s valuation has at times been benchmarked against the price that Aabar had acquired its stake from Abu Dhabi Commercial Bank (ADCB).

Recall that ADCB had first bought into RHB at a valuation of 2.25 times price-to-book value (P/B).

Subsequently in 2011, Aabar purchased the block of shares in RHB from its sister company, ADCB, at similar valuations so that ADCB did not take an impairment loss on its books.

For this proposed RHB-AMMB merger, RHB is proposing an all-share transaction, with RHB issuing new shares valued at 1.0 times P/B to acquire the assets and liabilities of AMMB at a similar 1.0 times P/B.

As for AmBank, it was fined RM53.7mil by Bank Negara in 2015 for breach of regulations under the Financial Services Act 2013. The fine was slapped in relation to its dealings with 1MDB.

However, AmBank has said in the past that it has learnt an expensive lession from the fine and had plugged all the shortcomings.

In a statement, RHB group managing director Datuk Khairussaleh Ramli said with the decision, the bank would continue to execute its initiatives under its current strategy to create value for its shareholders, and focus on delivering superior customer experience.

Meanwhile, AmBank Group chief executive officer Datuk Sulaiman Mohd Tahir said given the heritage and strength of the AmBank Group, it was confident of moving forward despite the fact that the merger did not materialise. “Our group’s strategy and direction remains the same. We remain focused on our 2018 business plan, as we work towards running the bank better and changing the bank while delivering optimal returns for our shareholders,” he said.

With the cessation of the merger discussions, the exclusivity period following the exclusivity agreement entered into between both parties on June 1, 2017 will automatically lapse.

Banking consolidation has become increasingly difficult in the Malaysian financial sector due to valuations. Public Bank Bhd is the most expensive financial institution, trading at some 2.3 times book value. Most banks trade between 0.4 times and 1.4 times.

This is RHB’s second failed attempt at a merger, following its proposed three-way mega merger of CIMB Group Holdings Bhd, Malaysia Building Society Bhd and RHB in 2015.

Aabar was seen as wanting a higher price and the deal failed to materialise.

Aabar, a unit of International Petroleum Investment Company, recently merged with Mubadala Development to form a new entity, Mubadala Investment Company.

Had the proposed merger in 2015 taken place, the banking group would be the fourth-largest banking group in Malaysia, first in asset management, first in general insurance, first in brokerage and second in Islamic banking.

RHB is the fourth-largest lender, while AMMB is the sixth-largest based on asset size.

RHB shares fell seven sen to close at RM4.88, while AMMB shares closed unchanged at RM4.70 prior to their suspension on Monday.

Both stocks will resume trading at 9am today.