RHB Cap and OSK: Largest Investment Bank in the making?

Finally, Bank Negara Malaysia (BNM) gave the green light for RHBCap and OSK to start negotiations on the possible merger yesterday. The approval is valid for 3 months. Indeed, the act by BNM is fast this time, signalling its commitment to consolidate the banking sector. Regional footprint is increasingly crucial for local players to counter the highly competitive domestic landscape. That's why BNM is willing to speed up the process of any merger and acquisitions that may create a regional champions.

The merger of RHB Cap and OSK will proudly creates the largest investment bank at least in Malaysia. Currently, CIMB leading the segment under the leadership of Datuk Nazir Razak. If we recalled back, RHB Securities is very famous during 90s before financial crisis. When we heard about RHB last time, it refers to RHB Securities (not RHB Bank), which is a business under the investment banking arm.

However, everything was changed after the 97 financial crisis, which left RHB with heavy debts and the business of RHB Securities lag behind without much focused by management since then. Anyway, it's good to know that RHB is trying to revive the long lost business.

Would the deal go through?

For RHB, it would be the first major milestone for new Group Managing Director Kellee Kam, who said: "This is an exciting opportunity for the RHB group as it would enhance and elevate its investment banking franchise to a new level".

Meanwhile, OSK had signaled that they are happy for any collaboration with RHB. Currently, OSK had a wider regional footprint with operations in KL, Singapore, Hong Kong, Shanghai, Phnom Penh and Jakarta. Coupled with its strong brand name, this is definitely a big boost to RHB's expansion plan.

As such, my view is that both parties are keen to conclude the deal on a willing buyer willing seller basis. Backed by EPF, RHB had a lot of cash in hand, while OSK needs the money to kick-start its regional operations.

At what price?

The determining factor for any M&A activities would be the price. And, this is the most important part where investors would want to know, so that, they can benefit from it. Well, I believe the merger plan would eventually turn-out to be an acquisition plan, where RHB Cap may launched a take-over deal for OSK. That's why I only set a determining price for OSK here, which is in the range of RM1.90 to RM2.00 (depending on how hungry RHB was). Let's see how it go.