BURSA Malaysia’s decision on whether the Employees Provident Fund (EPF) has the right to vote in the potential mega merger of three financial institutions (FIs) will have implications for the pension fund’s investments in other listed companies, its CEO says.
The EPF wants to be able to vote when the banks’ shareholders eventually have a merger proposal to decide on. However, certain listing rules prevent it from being able to vote, as it is a substantial shareholder in all three FIs.
It is the single largest shareholder in RHB Capital Bhd and Malaysia Building Society Bhd (MBSB) with 41.5% and 64.6% stakes respectively, and holds 14.6% of CIMB Group Holdings Bhd.
EPF CEO Datuk Shahril Ridza Ridzuan points out that since the EPF has widespread interest in the Malaysian market — it owns more than 5% equity interest in over 100 companies — there is a chance it could get caught in a similar situation in future.
“That is precisely why we want a ruling decision from Bursa because what it rules today will have implications for our investments in the rest of the companies,” he tells The Edge in an interview on the fund’s investments.
It is understood that the EPF had written to RHB and MBSB, requesting them to apply to Bursa for a waiver from the listing rules, so that the EPF can vote.
Asked what would happen if Bursa ruled that the EPF can’t vote, Shahril says, “If that happens, then technically we have to be very careful with our investments in future, like how much we hold in a company. We now have stakes in many companies, like all the big banks, plantation companies and so on.
“If we cannot have voting rights in these institutions and they try to do deals with each other, it would be very dangerous for us. [If there is] any merger in the banking sector, we would be cut out if we cannot vote because we own stakes in all the banks — Maybank, AmBank and so on — so what do we do?”
He goes on to say that the EPF needs to decide on a strategy to avoid this kind of situation in future. He says global pension funds do not face the same problem as the EPF — that is, an overconcentration of investment in one market, namely Bursa.
“The EPF’s investment in Bursa is equivalent to our entire investment in all the equity markets we invest in globally. Bursa, relative to global equity markets, is small, so [there is] an overconcentration. Also, with most global funds, there is no issue of restriction because they don’t own more than 5% in most companies — this is unique in the Malaysian context. This is an unfortunate situation where we are technically caught by the rules,” says Shahril.
Does this mean that the EPF will selldown its big investment positions? “[This is] not necessarily the case. We’ve been clear that over time, the EPF will just be a portfolio investor, not a strategic investor. We are not like Temasek Holdings or Khazanah Nasional Bhd. We should not be in this position with such big stakes,” he stresses.
Shahril says he has yet to see the proposed scheme of arrangement for the proposed RHB-CIMB-MBSB merger to create the country’s largest banking group and a mega Islamic bank. The three parties have 90 days to Oct 8 to talk exclusively and craft out a scheme.
He insists that the EPF is a non-interested party in the proposed merger.
“Some people are focused on the idea that we are asking for a waiver because we want to vote ‘yes’, which is really jumping the gun a bit because we have not seen the scheme yet. We’re not sure if the companies are coming to a deal yet as we are coming close to the end of the exclusivity period; no announcement yet.
“[But] the converse is also true. We might want to vote against the scheme, or any schemes other companies come up with — so are you saying that just because we are a substantial holder in two companies and they come up with a scheme which has nothing to do with us, which is independent of the EPF, surely we have a right to say yes or no to it. Otherwise, how can we protect our members?” he asks.
On market perception that the EPF is a key driver of the proposed bank merger and hence, should not vote, Shahril says, “Put it this way, if we were the key driver, we would be running the show in this transaction, then the whole thing would have been done by now ... [you’d know] how the structure looks like, valuations and so on.
“The truth is, we have been sitting on the sidelines ... we don’t get involved. We have one director on RHB’s board, Tan Sri Azlan [Zainol], and I sit on the MBSB board, but we don’t get involved. We are very careful about preserving how we are seen on this. If you believe in the conspiracy theory that we are involved in this, we would be done by now ... instead of waiting,” he remarks.
Quoting sources, The Edge had previously reported that one of the structures being considered for the step-by-step merger is for CIMB to sell its entire banking business to RHB, with the sale to be paid by an issuance of new RHB shares.
This proposed scheme is contrary to the popular belief that CIMB, the driver of the deal, would be the acquirer in the mega merger and end up as the holding company. It was reported that the next step of the merger would involve their respective Islamic banking subsidiaries being merged with MBSB, with CIMB Islamic Bank Bhd becoming the vehicle for the enlarged Islamic operations.
Asked what he thinks about RHB being the acquirer in the conventional banking merger, a move which analysts say would result in a big earnings dilution for RHB, Shahril says, “We don’t get involved in the day to day. We are updated whenever the company makes an announcement, [but] we try to stay out of it. No scheme has been put to us, apart from what we hear from the media. But when there is a scheme, we will look at the deal, the fine print. At the end of the day, it’s what we end up with that is important for a long-term shareholder like us.”
He says this deal is unlike other acquisition-related deals that the EPF had been involved in in previous years, like PLUS Expressways Bhd or KFC Holdings (M) Bhd. In those deals, the EPF made it clear that it would stay out of the voting process as there was “clearly” a related-party transaction conflict.
Still, some critics say the EPF doesn’t lose out by not voting as a major shareholder given that the minority shareholders tend to hold out for the best offer possible anyway. “Any offer that’s good for minority shareholders will always be beneficial for the major shareholders too. But if the EPF is allowed to vote, there’s a chance the minorities could be outvoted,” a banking observer says.
But Shahril, when asked for his view on the notion that the minority vote at an extraordinary general meeting should also be in line with what is best for all shareholders, retorts, “Would the minorities protect our interest? Not necessarily.”
A source told The Edge a few weeks ago that should the EPF obtain the approval to vote in the banking merger, the pension fund would likely only vote in its capacity as a shareholder in RHB and will sit out in voting as a shareholder of CIMB. (The EPF is not the single largest shareholder in CIMB.)
Shahril says the whole point of the EPF asking RHB to apply for a waiver from Bursa was to clarify the situation on the voting. “We do not know how the scheme is going to look like ... we would like to vote whatever the scheme is, so we would like them to clarify with Bursa on if we can vote.”
He says the EPF isn’t able to apply for the waiver from Bursa directly as under the listing rules, only listed companies can do so.
This article first appeared in The Edge Malaysia Weekly, on September 22-28, 2014.