Bursa postpones deliberation of EPF appeal

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BURSA MALAYSIA has postponed its deliberation of the Employees Provident Fund’s (EPF) appeal to vote in the proposed merger of CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd (MBSB), sources say.

Bursa’s Appeals Committee was to have met on Nov 28 and the EPF had been hoping to have a chance to plead its case by making an oral presentation at that meeting, The Edge Financial Daily reported last Thursday, citing sources.

“The meeting was postponed and no new date has been set as yet,” one of the sources tells The Edge.

On Oct 21, Bursa’s 10-man Listing Committee had ruled that the EPF cannot have a vote in the mega merger as the pension fund is a common major shareholder in all three financial institutions, giving rise to a potential conflict of interest. It has a 41.5% stake in RHB, 64.6% in MBSB and 14.6% in CIMB.

On Oct 31, however, RHB and MBSB had each, at the EPF’s behest, submitted an appeal to Bursa to reconsider that decision.

All this while, the EPF had been looking to vote only at the RHB and MBSB level where it has sizeable stakes as the single largest shareholder, sources say. However, it is understood that the EPF may now be amenable to abstaining from voting at MBSB.

“It’s an option that the EPF might look at to address the ‘conflict’ situation. This could well be what it proposes to Bursa if it is allowed an oral hearing [at the Appeals Committee’s meeting]. But at the RHB level, it definitely wants to vote,” a source says.

The source points out that the situation in RHB is unlike that at MBSB, where the EPF’s controlling 64.6% stake can sway the outcome of a vote. RHB also has other size­able single shareholders such as Abu Dhabi’s Aabar Investments PJS, which could hold the trump card in a vote with its 21.2% stake if the EPF is not allowed to vote.

If the EPF is allowed to vote in

RHB with its 41.5% stake, the merger would be pretty much a done deal, if it is in favour of it. This is because as the acquirer, RHB needs only 50%-plus-one share approval for the deal to go through. The merger has been structured such that RHB will acquire larger rival CIMB’s assets and liabilities via a share swap, after which their respective Islamic banks will merge with MBSB to form a mega Islamic bank.

At this point, however, analysts and industry players think the EPF may just be clutching at straws with its last-ditch attempt to get Bursa to change its mind. Bursa is unlikely to budge from its earlier stance, they say.

“Questions will be asked if the stock exchange can reverse important decisions just like that and it’ll set an unhealthy precedent,” remarks a banking analyst from a local research firm.

While the EPF is unlikely to have any fresh reasons for pleading its case, it wants to be allowed to make an oral presentation at the Appeals Committee meeting, hoping that this would be more effective in convincing Bursa than an earlier written representation that it had submitted to the stock exchange operator, a source says.

The EPF has long argued that the interest of its 14 million contributors is at stake if it is not allowed to vote in the proposed mega merger. EPF CEO Datuk Shahril Ridza Ridzuan has previously pointed out that it may have to re-look its investment strategies as the EPF owns more than 5% interest in over 100 companies and may be caught in a similar situa­tion in future.

CLSA Research notes that while the EPF does not reveal the exact split between local and foreign equity investments, equities constitute the single biggest asset class within its portfolio (43%, up from 39% in 2012) and the institution’s presence in the domestic stock market is broadly felt as per its significant shareholdings in almost all listed blue-chip companies.

“While EPF has generally been a passive investor, it is now showing signs of increased activism as per its recent vocal comments that it should be allowed to vote in any potential CIMB-RHB-MBSB banking merger scenario,” it notes in a Nov 28 report.

Interestingly, CIMB’s stock has been on a downward trend since the mega merger was announced. Its share price recently fell below the RM6 mark, dropping to as low as RM5.74 on Nov 21, but recovering to close at RM5.83 last Friday.

At RM5.83, it is 18.32% lower than CIMB’s RM7.138 close on July 9 prior to news of the mega merger being announced on July 10. The latest closing price of RM5.83 is also 16.5% lower than the closing price of RM6.98 on Oct 8 — the day before the structure of the merger was announced.

On Oct 9, it was officially revealed that RHB would acquire CIMB via a share swap at an exchange ratio of 1.38 (1 RHB share for every 1.38 CIMB share). This is based on a valuation of RM7.27 per share for CIMB and RM10.03 per share for RHB.

But while CIMB’s stock slid, both the stocks of RHB and MBSB rose following the merger announcement on July 10.

RHB ended the day higher at RM9.18 on July 11 from its close of RM8.72 on July 9 while MBSB closed at RM2.46 compared with RM2.34 during the same period. MBSB continued to climb to close at RM2.57 last Friday.

RHB continued on its upward trend and closed at a historic high of RM9.50 on Aug 19. It has since come down, partly due to the fall of the stock market in October, to close at RM8.18 last Friday. This translates into a 6.2% drop from its close of RM8.72 prior to the news of the merger on July 9.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.