Malaysia’s largest two banks, Maybank and CIMB Group, have dropped separate plans to acquire smaller rival RHB Capital, sources said on Thursday, in a setback for government-driven consolidation of the banking sector.
The two backed off a few days after Abu Dhabi Commercial Bank sold its 25 percent stake in RHB to Aabar Investment at 10.80 ringgit ($3.56) per share, setting a high valuation bar for would-be-suitors.
The price paid by Aabar values RHB at around 23.7 billion ringgit ($7.8 billion), nearly 18 percent above the current market value of $6.6 billion.
The news, which was first reported by Singapore’s Straits Times, sent RHB shares more than 5 percent lower, and delays impending moves to cut the number of banks from the current 10.
An earlier round of mergers in 1998 shrunk the number of lenders to 10 from 54.
“This (RHB deal) is working out to be a stumbling block in the whole Malaysian banking consolidation story,” said Kaladher Govindan, head of research with TA Investment Bank.
“There are still smaller banks in Malaysia to look at, from the likes of Affin, for instance. It appears that RHB Capital will be left alone for some time because it has some good synergies with its new 25 percent shareholder.”
A source with knowledge of discussions told Reuters that CIMB decided to call off the merger talks after Aabar Investments snapped up the stake in the bank at a relatively high price.
Malaysian newspapers have said that the 10.80 ringgit per share paid by Aabar for ADCB’s 25 percent stake was high as it valued the bank at 2.25 times book value.
In comparison, the last bank takeover in the country – Hong Leong’s acquisition of EON Cap earlier this year – was done at only 1.4 times book.
“The Aabar deal kind of kept a floor on valuation which is undoubtedly difficult for Maybank and CIMB to pay,” said a Dubai-based banking source, who declined to be identified because of the sensitivity of the matter.
The Straits Times quoted sources as saying the stake sale by Abu Dhabi Commercial Bank has complicated the proposed takeover of RHB.
“Pricing wise, the takeover doesn’t make much sense now. There is going to be a cooling down and the two banks may revisit the prospect of a merger with RHB at some other time,” a senior financial executive, who spoke on condition of anonymity, was quoted as saying by the newspaper.
Straits Times said the two state-controlled lenders have informed the country’s central bank, Bank Negara, about their decision to abandon merger plans with RHB.
Central bank officials were unavailable for comment.
A consolidation of the banking sector was at the heart of Malaysian prime minister Najib Razak’s initiative to create regional banking champions, as part of the government’s plan to increase investment in the Southeast Asian nation and move it up the value chain.
A takeover by Maybank would have created the biggest banking group in Southeast Asia by market value, at around $28.4 billion, while a CIMB-RHB combination would have a combined value of around $27.6 billion. Both would exceed the $26.7 billion of Singapore’s DBS.
Credit Suisse is advising RHB on the transaction while Nomura is helping Maybank. Morgan Stanley is advising CIMB, a source told Reuters.
RHB shares were down 5.6 percent after the news while the broader Malaysian market was down 0.2 percent in late afternoon trade. CIMB and Maybank shares were little changed.-By Liau Y-Sing and Min Hun Fong