CIMB Group Holdings RHB Capital and Malaysia Building Society are seeking approval for a three-way merger, creating a “major ASEAN financial powerhouse and a mega-Islamic bank”.

CIMB Group Holdings RHB Capital and Malaysia Building Society are seeking approval for a three-way merger, creating a “major ASEAN financial powerhouse and a mega-Islamic bank”, it announced yesterday.

The merger will see a share swap between CIMB Group and RHB Capital at an exchange ratio of 1.38 (1 RHB Capital share for 1.38 CIMB Group share). This is based on a benchmark price of RM7.27 per CIMB Group share and RM10.03 per RHB Capital share; translating into price-to-book ratios as at 30 June 2014 of 1.70 times and 1.44 times for CIMB Group and RHB Capital respectively.

CIMB Group shareholders will own 70 per cent of the merged CIMB-RHB Group and RHB Capital shareholders the remaining 30 per cent, the statement said. The lenders have a combined market value of around $27 billion (source: Bloomberg).

Such a move has been speculated on for some time. In early August, the notion that a new, enlarged group with $188 billion of assets could come to pass meant that, according to Business Monitor International, it would therefore surpass Maybank’s MYR560 billion ($176.1 billion) and catapult it as the ASEAN region’s fourth-largest bank behind the Singaporean triumvirate of DBS, United Overseas Bank and OCBC..

“We are extremely pleased to have been able to reach this stage in the process. This exercise will cement CIMB Group’s position amongst the top banks in ASEAN and bring a host of value creation opportunities for all our stakeholders,” Tengku Dato’ Zafrul Tengku Abdul Aziz, acting group chief executive, CIMB Group, said in a statement.

Kellee Kam, RHB Capital group managing director said: “I am glad that we have been able to come this far in our negotiations in such short a time. The RHB Banking Group has enjoyed tremendous progress in the last few years, seeing us grow from strength to strength. This merger is a natural step in our growth story, enabling us to become a regional financial powerhouse via the merged entity.”

“The strategic rationale for the merger and the subsequent creation of a mega-Islamic bank is clear and we’re focused on getting this to the finish line,” said Dato’ Ahmad Zaini bin Othman, president and CEO of MBSB.

The parties will now move towards the due diligence process in view of signing a definitive sale and purchase agreements. Following the SPA, consent of other regulators and shareholders will be sought. The deal is expected to complete in mid-2015.

According to figures up to December last year, Malaysia remains the largest Asian country to house Islamic funds in terms of assets worldwide, sharing space with Saudi Arabia, which if combined will comprise 63.1 per cent of the total industry assets under management. (Source: Malaysia International Islamic Financial Centre.)

Separately, Maybank, the country’s biggest lender, has reportedly said it is unconcerned by the possible entry of rival CIMB into the Philippines.

CIMB-Principal Asset Management in Thailand, part of Malaysia’s CIMB, meanwhile, recently agreed to acquire Finansa Asset Management Thailand for just over $7 million as it seeks to bolster its market reach in the region.