BURSA MALAYSIA will consider an appeal by the Employees Provident Fund (EPF) to vote in the proposed merger of CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd only if there are fresh reasons to evaluate, sources say.

On Oct 21, Bursa’s 10-man listing committee had ruled, after hours of deliberation, that the EPF cannot vote in the proposed mega merger on the grounds that there was potential conflict of interest, given that the provident fund is a common major shareholder in all three entities.

It is understood that the decision by the committee members that day was unanimous.

On Oct 31, however, RHB and MBSB had each, at the EPF’s request, submitted an appeal to Bursa to reconsider that decision, a move analysts say indicates that the EPF will likely pursue every opportunity it has to be able to vote in the proposed merger.

“Bursa has since come back with a written reply, asking if there are any fresh reasons. It indicated that it will only consider an appeal if there are fresh reasons. But the EPF has yet to come up with any,” a source tells The Edge.

Bursa has also verbally indicated to the companies that if at all it allows the parties to present an appeal, it would likely happen by Nov 28, the source adds.

Yet another source familiar with Bursa’s operations says that if an appeal is to be heard, it would no longer be deliberated at the listing committee level. “It will go one level higher, probably to Bursa’s board of directors,” the source says.

Nevertheless, industry observers and analysts believe that even if Bursa were to accommodate an appeal, it is unlikely to budge from its stand of not allowing the EPF to vote.

“I doubt it will suddenly change its mind on the matter, even if the EPF provides new reasons. Questions will be asked when the stock exchange can reverse important decisions just like that, and it will set an unhealthy precedent,” says a banking analyst from a local research firm.

Others wonder what new line of argument the EPF can possibly present to change Bursa’s mind. “I think, if it’s so important for them to vote, they should just express their views to Bursa and the public on whether the proposed merger is good or bad for them. It’s interesting that they have yet to state their opinion on that. They’re just saying that they should be allowed to vote because the interests of their 14 million members are at stake,” says another analyst.

Under Bursa’s listing rules on related-party transactions, the EPF cannot vote as it owns substantial stakes in all three entities. It is the single largest shareholder in RHB and MBSB with a 41.5% and 64.6% stake respectively, and holds a 14.6% stake in CIMB.

Prior to the Oct 21 rejection, the EPF had instructed RHB and MBSB to get Bursa to grant it a waiver from the listing rules.

“Sometimes, the way you present your reasons can make all the difference. Don’t forget that PNB (Permodalan Nasional Bhd) voted in the mega merger of several companies that formed Sime Darby Bhd back in 2007, and the EPF’s situation in this [banking] merger is not dissimilar to that. So, there is actually a precedent for a supposedly interested party to vote in a big merger,” an industry observer says.

Bursa, in explaining its rejection to RHB and MBSB on Oct 21, pointed out that the EPF’s position is not the same as the other shareholders in the companies. It said its controlling stakes in the two companies put it in a position of “significant influence”. It also pointed out that the EPF had prior knowledge of the proposed merger as it was notified by CIMB.

It also noted that the EPF’s overall position in the three entities would differ from that of other shareholders, given the differing terms and valuations applied to the three companies.

The merger, which will also bring about a mega Islamic bank, has been structured such that RHB will be acquiring larger rival CIMB’s assets and liabilities via a share swap. After the CIMB-RHB merger, their respective Islamic banks — CIMB Islamic and RHB Islamic — will merge with MBSB to form the mega Islamic bank.

If the EPF is allowed to vote with its 41.5% stake in RHB, the merger is pretty much in the bag, if it is for the deal. This is because as the acquirer, RHB needs only 50%-plus-one share approval for the deal to go through. If it were the selling party, it would have needed a 75% vote.

If the EPF has to abstain from voting, then RHB’s 21.2% shareholder from Abu Dhabi — Aabar Investments PJS — will hold the trump card. Without the EPF, Aabar will hold a 36.2% vote, which means that if it does not agree to the deal, it will be tougher — though not impossible — for the merger to go through.

However, The Edge reported in its Oct 27 issue, quoting a source, that Aabar is now leaning towards voting in favour of the deal. It is not clear why this is so, but it is understood that there have been top-level government-to-government discussions. Abu Dhabi also has other promised investments in Malaysia, including a plan to develop a RM21 billion petroleum reserve facility in Johor.

Aabar had earlier been seen as a potential stumbling block to any merger, as it had been seeking a high price of RM12 a share for its stake in RHB — much higher than the RM10.03 RHB was valued at in this deal.

Aabar acquired the shares at RM10.80 apiece in 2011 from its sister company Abu Dhabi Commercial Bank, a left-to-right-hand transaction, which inevitably set a high “floor” price for any potential merger transactions. RHB’s share price, however, has yet to cross the RM10 level in over five years.

This article first appeared in The Edge Malaysia Weekly, on November 10 - 16, 2014. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.