MIDF-Al Rajhi merger hangs in the balance as BNM deliberates

BNM would take a couple of months to scrutinise proposed deal with an outcome that could be made known by year-end


THE proposed merger between Malaysian Industrial Development Finance Bhd (MIDF) and Al Rajhi Banking & Investment Corp (M) Bhd (Al Rajhi Malaysia) could likely tip in favour of a definite agreement after a nine-month discussion.

Both parties have submitted a proposal to Bank Negara Malaysia (BNM) before the Sept 27 deadline despite key issues, like shareholding and branding of the new bank after the merger, which would need to be ironed out.

The central bank, which approves or rejects any mergers in the country’s banking sector, would take a couple of months to scrutinise the proposed deal with an outcome that could be made known before year-end.

An industry watcher said: “As MIDF and Al Rajhi Malaysia have not announced (whether) the deal has fallen through, then there is every chance that the deal could go through despite the long discussions.”

“It is now a question of who will be spearheading the new bank after the merger,” said the industry analyst to The Malaysian Reserve (TMR).

MIDF was not available to comment during press time.

The wholly owned subsidiary of Permodalan Nasional Bhd largely focuses on wholesale and investment banking and Islamic capital-raising, besides small and medium enterprisefinancing.

Meanwhile, Al Rajhi Malaysia is a retail bank. Based on the information on its website, the bank started with its first branch on Jalan Ampang, Kuala Lumpur, in 2006 and now has 17 branches nationwide. Al Rajhi Malaysia’s parent company is the Saudi Arabia-based Al Rajhi Banking & Investment Corp.

Based on MIDF’s unaudited financial statement for the financial year ended March 31, 2019, it posted a net profit of RM12.13 million, while total assets stood at RM6.2 billion.

For the financial year 2018, MIDF’s total assets stood at RM5.8 billion. During the January-December 2018 period, MIDF posted a net loss of RM67.2 million, largely due to a RM111.8 million impairment provision for financing. Taking out the impairment provision, MIDF posted an operating profit of RM58.3 million for 2018.

Meanwhile, for Al Rajhi Malaysia, the banking group’s total assets were RM7.19 billion at the end of June this year. The bank posted a net profit of RM4.89 million for the April-June 2019 period and RM7.15 million in the first six months of this year.

Rakuten Trade Sdn Bhd VP of research Vincent Lau said both banks will make the announcement when “BNM gives the greenlight”.

Lau said MIDF and Al Rajhi Malaysia would have been required to make an announcement if the merger had fallen through at any point during the talks.

Banks in Malaysia are restricted from engaging in discussions on a prospective merger without the central bank’s prior approval.

BNM first gave the go-ahead for MIDF and Al Rajhi Malaysia to commence talks back in January this year. But two extensions were given as both parties could not nail a final agreement.

Meanwhile, another analyst said the central bank can impose its own conditions on the merger as it is prerogative, according to a local analyst.

“These conditions can complicate the matter and could prove a potential deal breaker,” the analyst told TMR under conditions of anonymity.

“There are many moving parts at hand. A lot of things are happening behind the scenes that we are not privy to — only the banks themselves and the regulator know what is going on,” said the analyst.

Consolidation in Malaysia’s banking sector, which are typically executed via merger and acquisition deals, have been hit-and-miss.

Malaysia Building Society Bhd became a full-fledged Islamic bank after completing the RM645 million acquisition of Asian Finance Bank Bhd early in 2018, but the proposed merger between AMMB Holdings Bhd and RHB Bank Bhd reportedly fell through in 2017 on valuation issues.