Why Maybank and CIMB gave up on RHBCap? (23 June 2011)

Merely less than one month of battle (not even pulling off the gun), both Maybank and CIMB today respectively announcing to abort the merger talks with RHBCap. Funny oh? First, the news of aborting was first reported by a Singapore newspaper, not Malaysia, and why not Malaysia? Second, both contenders had set end of June's proposals, announced just only last week. So fast change mind?

Both CIMB and Maybank are turning their heads away from RHB now.

Of course, between the dates, Abu Dhabi Commercial Bank (ADCB) made a significant headline when it sells its 25% stake in RHBCap to its sister company, Aabar Investment, for RM10.80 per share, which value RHBCap at 2.25 times RHBCap book value. Does this really affecting the merger talks?

What CIMB says?

In a statement Thursday, June 23, CIMB group chief executive Datuk Seri Nazir Razak said that based on its discussions and assessment of the present expectations of key stakeholders, the bank did not believe that it would be able to arrive at a value creating merger.

“Merger negotiations are both resource consuming and distracting for staff and stakeholders.

"Therefore, we prefer not to prolong our discussions unnecessarily, allowing all parties to return to ‘business as usual’ as soon as possible,” he said. (TheEdge)

What Maybank says?

“In light of recent developments and following further deliberations, the board of directors of Maybank has decided not to pursue the possible merger at this juncture,” Maybank said on Thursday, June 23. (TheEdge)

Who knows? RHB's investors should sell their holdings above RM10 previously.

What Finance Malaysia says?

"The merger talks most probably is still on-going, but behind the board room. ADCB's RM10.80 did set a hindrance for both parties to proceed with the merger talks, in order to convince other shareholders."

"Other than that, EPF's role is crucial for all parties to consider now. Sooner or later, EPF must divest its stake to below 20%. By then only can EPF remove itself from the day-to-day operations of RHB Bank. Remember, EPF's role was supposed to invest, not managing a company."

"Thirdly, Maybank and CIMB may think that the merger talks would takes a long time to consider, and it may affects the day-to-day operations of RHB Bank. Just like EONCap, many of their staffs are turning to other banks while Hong Leong Bank is launching and fighting its merger plans."

Where is the money for "Warisan Merdeka"?

One of the most controversial project announced in Budget 2011, Warisan Merdeka claim the top spot. Dubbed as Malaysia's tallest building with 100-storey tall, the 10 years project will kick-start next year. However, many quarters lamented the project as lavish, unnecessary, and would worsen the famous KL city traffic.

In respond to this, PNB's group chief executive Tan Sri Hamad Kama Piah hold a press conference to address the issue. Among the key phrases taken are:

"We are not taking government's money (for this project)"

"PNB had the capability to finance the project through internally generated funds"

"PNB existing head quarter will be 30 years old when the project is completed"

Show me the $$$...

Yes, I believe PNB would not use government's money for this project. Anyway, what does it meant by internally generated funds? As we know, PNB managed a range of Amanah Funds in the country. 

Yes, I believe PNB would not use our Amanah Saham Funds' money for this project. The internally generated funds is mainly coming from the returns generated through investments in a portfolio of listed companies, such as Sime Darby. Actually, who gave money to PNB to invests? Is this called "internal generated funds"?

Meanwhile, there is fact that KL office space is over-supply currently, and projected it will precede for another 6 years. Current take-up rate at KL city center is only 80%. Although it will take 10 years to complete, the huge building means great office space will be made available by then. Could PNB find the tenants by then?

Yes, PNB will make the new tower as its new head quarter, and for its investee companies too. But, can it be enough for 100% occupancy? Definitely NOT enough. So, PNB have to attract other tenants, which is a problem to another problem - traffic congestion.

Just imagine, 10,000 people with 2,500 cars coming out from the car park!!! How are you going to attract tenants? If no tenants, PNB would face losses (I hope not our Amanah Saham) then.

Undoubtedly, I would like to see a successful big project taking shape. But, due considerations must be made to such multi-billion project. Can we build it at Putrajaya instead?

Why MMC want to take over UEM Group?

When the RM15.6 billions take-over news broke out, MMC share price has been rallying to multi-months high. It was reported that MMC is pairing with EPF and PNB with MMC holding a 40% stake of the consortium. On the other hand, Khazanah Nasional Bhd is the ultimate holding company of UEM Group Bhd.

The Pull factors…

1. PLUS Expressways, is one of the key assets that spark MMC interests? The national’s largest cash-generating toll-operator undeniably is Khazanah’s golden asset with 55.2% direct and indirect interest.
2. UEM Land, which has a huge land bank in southern corridor – Iskandar Development Region. This is favorable to Johor based MMC’s investments.
3. To boost its construction arm with stronger muscle? UEM Group is having several projects in Malaysia, such as the Penang Second Bridge. MMC can leverage on the latter expertise and also to gain market share, given the lack of domestic awards.

What makes me interesting is the alternative MRT proposed by IJM-UEM recently. By acquiring UEM, MMC could break-up the joint venture and effectively eliminate the said rival proposal which reportedly costing much lower than the Gamuda-MMC RM35bil proposal. There are two possibilities:

1. Take-over succeeds.
2. Failed. But, MMC guaranteed succeeds in MRT project, because government is running out of time to consider an alternative proposed by IJM-UEM joint venture, which is remain uncertain.

Either way, MMC will gain more than harm. Or, is this the strategy employed by MMC?