The activities of some Islamic banks in Malaysia, especially the foreign banks, in the mergers and acquisitions (M&A) arena over the past year have been quite encouraging. These activities have been further spurred on by the introduction of a new ruling by Bank Negara Malaysia (BNM) at the end of last year.
Under this new ruling, parties intending to enter into negotiations for the acquisition or disposal of an aggregate interest of 5% or more shares in a financial institution licensed under the Banking and Financial Institutions Act, 1989 (BAFIA), the Islamic Banking Act, 1983 (IBA) or the Development Financial Institutions Act, 2002 (DAFIA) can now submit their intentions with more than one party simultaneously.
The new ruling revokes the previous ruling which disallowed multiple-party talks between potential buyers and target banks or financial institutions at the same time.
The recent M&A activities first gained momentum when Dubai Financial, a wholly owned subsidiary of Dubai Investment Group – a member of Dubai Holding – subscribed for 690.19 million shares in Bank Islam Malaysia (BIMB), the first Islamic bank in Malaysia, in October 2006. This subscription represented 40% of the enlarged share capital of BIMB. Three new directors and one alternative director representing Dubai Financial were also appointed to the board of directors of BIMB.
In addition, Dallah AlBaraka, a Saudi conglomerate and one of the largest companies in the Middle East, attempted to acquire a stake in RHB Islamic Bank (RHB Islamic), a unit of the Malaysian company RHB Capital. However, for various reasons, RHB Islamic announced in November last year that it had broken off talks with Dallah AlBaraka.
Recently, a Kuwait Finance House Malaysia (KFH)-led consortium entered into the bidding war with Employees Provident Fund (EPF), EON Capital and Primus Pacific Partners for the acquisition of a 32.8% stake in RHB from Utama Banking Group (UBG). RHB owns 64.61% shares in RHB Capital, which in turn owns 70% of the shares of RHB Bank Berhad, which is the fourth largest banking group in Malaysia. Although the KFH-led consortium was seen by many as the frontrunner to win the bidding war, EPF finally turned the table on this consortium and won the bidding war. (See Islamic Finance news, Vol.4, issue 11, pages 1 and 14).
KFH, despite losing the bidding war, nevertheless continued to express its interest in holding equity participation in RHB. KFH managing director, K Salman Younis, when asked recently said: “Yes, if we are approached and offered [an equity in RHB], we will look at it positively.” He further said: “We hope to have a role to play should EPF sees synergies in partnering with KFH.”
What is more interesting to note is that EPF is also looking for strategic partners in RHB, one of which is rumoured to be KFH. KFH recently reiterated that it is committed to creating value and transferring its knowledge in Islamic banking and finance to its operations in Malaysia. KFH also aims to create a mega Islamic bank based in Malaysia.
It is the belief of many that the aim of the Malaysian government to position Malaysia as an international Islamic financial center (MIFC) can be realised if a mega Islamic bank is established in Malaysia. For this, more foreign players are needed to make Malaysia a truly international center, so the current flurry of M&A activities in the country must be encouraged and extended.