MIDF keeps mum on Al Rajhi merger talks

BNM has given an extension, up to June 27, to conclude negotiations and tomorrow will mark exactly 2 weeks since the deadline

by MARK RAO / pic by BERNAMA

MALAYSIAN Industrial Development Finance Bhd (MIDF) remains tight-lipped about its negotiations with Al Rajhi Banking and Investment Corp (M) Bhd (Al Rajhi Malaysia) that could pave the way for a potential merger, despite the deadline for the talks ending last month.

“Although we appreciate there is some interest in the answers to the questions you have raised, we are currently not in a position to confirm any information or details at this point in time,” an MIDF spokesperson told The Malaysian Reserve when contacted.

Both banking groups announced on Jan 10 this year that Bank Negara Malaysia’s (BNM) approval had been secured to commence talks on a potential merger. However, both parties failed to reach an agreement past the March deadline.

The companies then requested for an extension and were given another three months, up to June 27 this year, to conclude their negotiation.

Tomorrow will be exactly two weeks since the deadline and neither party had announced if the negotiations remain ongoing or if the deal fell through.

In the former scenario, BNM will first have to grant another extension as  banks in Malaysia are not allowed to engage in merger talks without prior central bank approval.

Al Rajhi Malaysia was also unable to comment at press time.

A financial daily reported earlier this month that both parties are still in the due diligence stage and, while keen on a merger, the companies are rushing to meet the deadline to conclude talks.

Consolidation efforts via merger and acquisition deals, be it in the banking sector or other industries, would typically fall through due to valuation issues. Malaysian banks have had varying success on this front.

Bank Muamalat Malaysia Bhd was subject to a potential merger with Malaysia Building Society Bhd (MBSB), but the deal fell through in 2017 due to what was suspected as valuation issues.

BNM first approved merger talks between the two banks on Sept 30, 2015, but despite repeated extensions, both parties failed to reach an agreement.

Bank Muamalat was one of only two domestic standalone Islamic banks at that time and the merger with MBSB would have created Malaysia’s second-largest Islamic bank with some RM62.1 billion in assets.

MBSB has since become a full-fledged Islamic bank after completing the RM645 million acquisition of Asian Finance Bank early last year.

The merged entity had approximately RM47.43 billion in assets as of March 31 this year.

Bank Islam Malaysia Bhd, the largest standalone Islamic bank in Malaysia, had RM63.32 billion in assets in the first quarter of 2019 (1Q19).

In comparison, MIDF only had RM6.24 billion in assets in 1Q19, while Al Rajhi Malaysia had RM6.93 billion.

A merger of the two banks would result in a combined banking group with RM13.17 billion in assets — comparatively low compared to its peers.

Nonetheless, both banks stand to gain from a merger. Al Rajhi Malaysia is reportedly keen on strengthening its position in Malaysia after entering the market in 2006.

The bank, which is owned by Saudi Arabia-based Al Rajhi Bank, brought in RM98.61 million in revenue in 1Q19, while net profit came in at RM2.26 million.

Meanwhile, a merger with Al Rajhi Malaysia will allow MIDF to become an Islamic financial institution as it currently does not have an Islamic banking licence.

MIDF brought in RM76.86 million in revenue and RM12.11 million in net profit for 1Q19.