This article first appeared in The Edge Malaysia Weekly on November 14, 2022 - November 20, 2022

In Corporate Malaysia, institutional shareholders such as the Employees Provident Fund (EPF) and Permodalan Nasional Bhd (PNB) lead the charge in shareholder activism. The rule of thumb in any corporate deal is that if the transaction is good enough for institutional shareholders, it should also be fair for the minorities.

But what happens if both the EPF and PNB are the main proponents of a corporate proposal?

In the merger between Malaysia Building Society Bhd (MBSB) and Malaysian Industrial Development Finance Bhd (MIDF), both institutional shareholders are the main players. MIDF is wholly owned by PNB while MBSB’s major shareholder is the EPF with 65.9%.

In April, both MBSB and MIDF obtained Bank Negara Malaysia’s approval to commence negotiations for a merger to establish a universal Islamic bank to offer a range of financial solutions.

Last Thursday, further details emerged, which may prove to be a hurdle for the merger to take place.

According to MBSB, pursuant to a commercial agreement between PNB and the EPF, MBSB may be deemed as a related party to the EPF. Hence, MBSB has sought waivers from Bursa Malaysia on two counts.

The first is a waiver from categorising both the EPF and PNB as persons connected to the deal and the second is that the exercise not be regarded as a related party transaction.

Bursa had initially rejected the application on Aug 12. However, pursuant to an appeal by MBSB, Bursa gave a conditional approval for the waiver. If the waiver is granted, the EPF will be able to cast its vote for the proposed merger. 

One of the conditions set by Bursa is that the MBSB board give a confirmation that “the company is not accustomed or under any obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the EPF”. The confirmation from the MBSB board is to be disclosed in the circular to shareholders.

Can the MBSB board give such an affirmation?

MBSB’s chairman is Tan Sri Azlan Zainol, the former CEO and chairman of the EPF, while its executive director is Sazaliza Zainuddin. Both are nominees of the EPF. Although both do not have any managerial responsibilities with MBSB, were they not taking care of the EPF’s interest in MBSB?

If there is no overall direction coming from the EPF as a 65% shareholder, who has been driving MBSB all these years?

To clear any ambiguity, why is MBSB seeking a waiver on behalf of the EPF? Why not let the minorities of MBSB decide on the merits of the proposed transaction?

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