RHBCap merger still possible

Several research houses believe Aabar Investments' best and quickest exit strategy is for RHB Capital to merge with CIMB or Maybank


KUALA LUMPUR: A merger between RHB Capital Bhd (RHBCap) and either of the country's top two banks could still happen if its key shareholder, Aabar Investments, were to lower its price expectations, says UBS Securities Malaysia Sdn Bhd.

Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd each aborted plans for a potential merger with RHBCap last week.

This was after Aabar inked a deal to buy a 25 per cent stake in RHBCap from sister company Abu Dhabi Commercial Bank at a hefty RM10.80 a share - or 2.25 times the bank's book value - which set the valuation bar too high for a merger to happen.

Several research houses, however, like UBS, continue to see RHBCap as a merger and acquisition (M&A) candidate.

RHBCap's share price has weakened by about 12 per cent since news of the bigger banks pulling out from a merger emerged.

This means Aabar is currently sitting on a paper loss of around RM1.1 billion, UBS said in a note to clients on Tuesday.

"In our view, there may be limited options in the near term for Aabar to turn around the investment loss and also to realise the investment. We believe Aabar's best and quickest exit strategy is for RHBCap to merge with CIMB or Maybank" and then sell the shares of the merged entity at a later stage, it said.

It estimated that if either Maybank or CIMB were merged with RHBCap under a share-swap structure, Aabar could have a 6 per cent effective interest in the enlarged entity.

This smaller stake in the merged entity would then be easier to sell as the shares would be more liquid.

"In our view, this might be a quicker and better value proposition for Aabar rather than holding out for a bid from either Maybank or CIMB at around RM10.80," it remarked.

UBS, however, also sees a strong case for RHBCap to merge with AMMB Holdings Bhd, the country's sixth largest bank, as there would be strong synergies.

"An acquisition price around RM10.80 could be justified and AMMB could be interested in a bid or merger, in our view," it said.

AMMB has been aggressive in diversifying its loan book away from hire-purchase loans and growing its current-account-savings-account (Casa) ratio, it noted.

A merger with RHBCap would immediately lower AMMB's exposure to hire-purchase loans to 21 per cent from 33 per cent, while its Casa proportion would increase to 21 per cent from 13 per cent, UBS estimated.

The merged entity's market share in the small-to-medium-sized enterprise segment would also be the largest - at 21 per cent compared with Maybank's 12 per cent and Public Bank's 14 per cent.

"However, we think the main issue in such a merger would be control," it remarked.

ANZ, an Australian shareholder with a 24 per cent stake in AMMB, currently has management control and may oppose if RHBCap's biggest shareholder - the Employees Provident Fund - wanted control.

UBS kept its "buy" call on RHBCap, with a 12-month target of RM10.90. The shares closed 5 sen lower to RM9.11 yesterday.