Creative fix

28 October 2014 By Una Galani Follow @ugalani

A sweetener looks needed to seal a $25 bln merger of CIMB with two smaller rivals. Yet a slump in CIMB’s shares limits its ability to improve the terms. Cutting a side deal with a state pension fund or a difficult Gulf investor increasingly looks like a plausible workaround.

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Malaysia’s bourse on Oct. 21 barred a key shareholder in CIMB Group and two smaller banks from voting on their planned 81 billion Malaysian ringgit ($25 billion) merger which would create the country’s biggest bank by assets.

The state-backed Employees Provident Fund (EPF) is a major shareholder in all three of the banks.

Malaysia’s CIMB, RHB Capital, and Malaysia Building Society (MBSB) outlined the proposed structure of the deal on Oct. 9.

Under the two-part proposal, RHB will issue new shares to buy its larger rival CIMB. One RHB share will be swapped for 1.38 CIMB shares.

CIMB’s Islamic subsidiary will also acquire Malaysia Building Society at a price of 2.82 ringgit per share in cash or shares.

Abu Dhabi’s sovereign fund Aabar Investments owns 21.2 percent of RHB, according to Eikon. EPF owns 41.5 percent.

The deal requires the approval of 50 percent of RHB shareholders by value.

Shares in CIMB have fallen 14 percent since July 9, the day before the three banks announced they were in talks.

RHB is being advised by Credit Suisse. JPMorgan Securities is advising CIMB.