BURSA MALAYSIA’s listing committee is set to meet Tuesday to discuss whether it will allow the Employees Provident Fund (EPF) to vote on the proposed mega merger of CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd (MBSB), says a source familiar with the matter.
“It (the EPF vote) is on the agenda. A decision should be made that day,” the source tells The Edge.
The EPF is keen on voting to protect its investments. However, under Bursa’s listing rules, it cannot vote as it would be deemed a conflict of interest as it is the common major shareholder in all three entities.
It is the single largest shareholder in RHBCap and MBSB with stakes of 41.5% and 64.6% stakes respectively, and owns a 14.6% stake in CIMB.
Bursa, however, can make an exemption. The listing committee, comprising 10 individuals led by chairman Datuk Md Tap Salleh, will be the one to make the call. Md Tap is president of the Malaysian Institute of Integrity.
It is understood that the EPF only wants the right to vote at the shareholders’ meetings of RHBCap and MBSB. Both RHB and MBSB had, at the EPF’s behest, written to Bursa to put forward the pension fund’s request for a waiver of the listing rules. Bursa, however, required more information from the two companies.
According to a Bursa source, before the bourse could make a decision on the waiver, it wanted, among other things, the boards of the two companies to make a stand on whether they thought the EPF should be allowed to vote on the proposed merger, The Edge Financial Daily reported on Oct 10, following a Bursa listing committee meeting the previous day.
It is understood that by the end of last Tuesday, the boards of RHBCap and MBSB had forwarded separate letters to Bursa, clarifying some matters that the stock exchange required. “The letters were cautiously worded … I’m not sure that they amount to ‘making a stand’,” a source familiar with the merger discussions tells The Edge.
It is against this backdrop that Bursa’s listing committee meets on Tuesday.
The merger, which will also spawn a mega Islamic bank, has been structured such that RHBCap will be acquiring larger rival CIMB’s assets and liabilities via a share swap. After the CIMB-RHBCap merger, their respective Islamic banks — CIMB Islamic and RHB Islamic — will merge with MBSB to form the mega Islamic bank.
If the EPF is allowed to vote with its 41.5% stake in RHBCap, the merger is pretty much in the bag if it is for the deal. This is because as the acquirer, RHBCap needs only 50%-plus-one share approval for the deal to go through. If it were the selling party, it would have needed a 75% vote.
However, if Bursa rules that the EPF must abstain from voting, then RHBCap’s 21.2% shareholder from the Middle East — Aabar Investments PJS – will hold the trump card. Without the EPF, Aabar will hold a 36.2% vote, which means that if it does not agree to the deal, it will be tougher — though not impossible — for the merger to go through.
For it to go through, the merger will need the support of RHBCap’s other substantial shareholder, OSK Holdings Bhd, with its 9.9% stake (but a 16.9% vote if EPF were out of the picture) and most of RHBCap’s minority shareholders, which include investment funds such as Skim Amanah Saham Bumiputera and Kumpulan Wang Persaraan.
While there’s no telling which way Aabar will vote, it is no secret that Aabar could be a stumbling block to any merger as it has been seeking a high price of RM12 a share for its stake in RHBCap — much higher than the RM10.03 RHBCap was valued at in this deal.
Aabar acquired the shares at RM10.80 each in 2011 from its sister company Abu Dhabi Commercial Bank, a left-to-right-hand transaction, which inevitably set a high “floor” price for any potential merger transactions. RHBCap’s share price, however, has yet to cross the RM10 level in over five years.
“Bursa’s decision still matters. If the EPF is able to vote, it improves the chances of the deal going through. If not, then RHBCap has to bring the deal to shareholders to see if it can get enough votes to see it through,” a source told The Edge two weeks ago.
At the MBSB level, industry observers say whether or not the EPF is allowed to vote with its 64.6% stake, the deal is likely to go through as the offer for MBSB’s assets and liabilities — at RM2.82 a share — is attractive.
MBSB was accorded the highest valuation of the three financial institutions at 1.93 times price-to-book, and the price was a 20.5% premium to its RM2.34 share price on July 9, the day before the parties proposed to discuss a three-way merger. Shareholders have the choice of receiving cash or shares in the enlarged Islamic bank.
EPF CEO Datuk Shahril Ridza Ridzuan, in an interview with The Edge in mid-September on the fund’s investments, pointed out that Bursa’s decision on the vote would have implications on the pension fund’s investments in other listed companies.
He highlighted that since the EPF owns more than 5% in more than 100 companies, there is a chance it could get caught in a similar situation in the future. “That is precisely why we want a ruling decision from Bursa because what they rule today will have implications on our investments in the rest of the companies.”
When asked what would happen if Bursa ruled that the EPF cannot vote, Shahril said: “If that happens, then technically we have to be very careful with our investments in the 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 is 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 went on to say that the EPF needs to decide on a strategy to avoid this kind of situation in the future.
This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.