PNB can realise RM1b from merger of MIDF and Al Rajhi, says analyst

The quantum of monetisation will depend on the structure of the merger, which involves entities under MIDF


PERMODALAN Nasional Bhd (PNB), the sole shareholder of Malaysian Industrial Development Finance Bhd (MIDF), could make a RM1 billion gain from the sale of its stake in MIDF in the proposed merger with Al Rajhi Banking and Investment Corp (M) Bhd.

A banking analyst with a local investment bank said, as of September 2018, shareholders fund in MIDF stood at RM1.7 billion on one-time book value.

The quantum of monetisation will depend on the structure of the merger, which involves entities under MIDF such as investment banking, asset management, small and medium enterprise financing and Islamic finance.

“A couple of hundred million, from the mid to the high hundred million, maybe…based on the RM750 million book value for MIDF Investment Bank Bhd in 2015, it could be higher now. MIDF itself has RM1.7 billion of book value,” the analyst said.

He believes MIDF and Al Rajhi will complement each other should the proposed merger materialise, as the former is mainly in investment banking and wealth management, while the latter is in commercial banking.

A deal may not result in major restructuring as the level of redundancy will be lower compared to the recent merger between Malaysia Building Society Bhd and Asian Finance Bank Bhd.

Bank Negara Malaysia (BNM) has given both parties three months to negotiate and table a deal, MIDF noted in a statement yesterday.

“It should be noted that this should not be construed as implying that a final merger agreement will be reached, or that BNM has approved the merger. MIDF will have to obtain prior approval from BNM or the Ministry of Finance, with the recommendation of the central bank.

“If an agreement is achieved, it will also be subjected to various conditions, including all relevant legal requirements and the approval of all regulatory authorities involved, both in Malaysia and the Kingdom of Saudi Arabia,” MIDF noted.

The analyst said a proposed merger may provide a wider scope of growth for Al Rajhi, which is facing some level of restrictions as a foreign bank.

“The scope of growth is limited and they need to find another way to grow further, to open more branches and have wider penetration,” the analyst told The Malaysian Reserve (TMR).

Some quarters of industry observers view the proposed merger could be a sign that the Middle Eastern- owned bank in the Islamic banking segment is facing a problem in finding growth opportunities and asset quality due to fierce competition from local rivals and central bank’s regulations.

“The way of doing Islamic banking business here in Malaysia may not be the same as in the Middle East,” an analyst told TMR.

Al-Rajhi Bank had RM7.78 billion in assets and has made a net profit of RM5.8 million for the third quarter ended September 2018, according to its website.

Malaysia, which started its journey in Islamic finance in the 1980s, aims to have 40% of its banking assets complying with Shariah by 2020. Shariah-compliant banking assets stood at around 30% of total industry in 2017.