This article first appeared in The Edge Financial Daily on November 6, 2017

KUALA LUMPUR: Non-bank lender Malaysia Building Society Bhd (MBSB) is expected to ink a sales and purchase agreement on its proposed merger with Asian Finance Bank Bhd (AFB) today, according to sources.

“The two parties are also understood to be meeting analysts today as well,” said one source.

Last Friday, Bursa Malaysia approved MBSB’s request for suspension in the trading of its securities today, pending the release of a material announcement.

On Aug 18, MBSB received notification from Bank Negara Malaysia that the finance minister had granted approval for its proposed acquisition of a 100% interest in AFB pursuant to the Islamic Financial Services Act 2013.

A merger of the two entities would create the country’s second-largest stand-alone Islamic bank with total assets of RM47.81 billion, after Bank Islam Malaysia Bhd.

The proposed acquisition of AFB is MBSB’s third attempt to acquire an Islamic banking unit, which is in line with its goal to become a full-fledged Islamic bank as opposed to its current status as a non-bank lender.

Its two previous failed attempts to acquire Bank Mualamat Malaysia Bhd and the Islamic banking units of CIMB Group Holdings Bhd and RHB Capital Bhd were reportedly due to disagreement over pricing valuation.

Once merged, the entity will be one of only three listed syariah-compliant companies in the financial services sector, with the other two being BIMB Holdings Bhd and Syarikat Takaful Malaysia Bhd.

The Edge Malaysia weekly in its June 12 issue cited sources as saying that the proposed merger involves MBSB buying AFB’s assets and liabilities in a deal that values the latter at a price-to-book value of between 1.2 times and 1.5 times. The total consideration is about RM650 million, with more than half of that comprising a cash portion.

The weekly’s Sept 4 issue reported MBSB president and chief executive officer Datuk Seri Ahmad Zaini Othman as saying that the non-bank lender has taken steps to convert its conventional loans to Islamic.

He shared that as at June 30, only about 15% of MBSB’s RM36.06 billion gross financing/loan book was conventional. They comprised mortgages and corporate loans. The group’s personal financing business, which makes up about 63% of its financing book, is 100% Islamic.

The Employees Provident Fund is the largest shareholder of MBSB with a 65.6% stake. Last Friday, MBSB shares rose one sen or 0.91% to RM1.11, with a market capitalisation of RM6.5 billion.