Malaysia mega-bank merger involving CIMB and RHB called off: report

KUALA LUMPUR (Reuters) - CIMB Group Holdings Bhd. and RHB Capital Bhd. are planning to scrap the three-way merger that would have created Malaysia's largest banking group, The Edge Financial Daily reported on Tuesday, citing sources.

Board members of the companies will meet on Wednesday when the deal will be called off, the newspaper said.

The newspaper reported on Jan. 10 that RHB was seeking a revision of the terms, preferring a cash portion due to the depreciation in the value of CIMB shares.

The state-backed deal, valued at RM72.5 billion (S$27.26 billion) when it was unveiled last October, was part of Malaysia's ambitious plan to promote its firms as regional champions and also create the world's largest Islamic bank. The proposed combination also included the acquisition of smaller lender Malaysia Building Society Bhd. (MBSB).

"There is no further development in relation to the merger at this juncture. Further updates will be made should there be any development," RHB said in a statement on Tuesday. CIMB and MBSB declined to immediately comment.

Sources told Reuters earlier this week that RHB was seeking new terms of their share exchange, and possibly cash, after shares in CIMB skidded 26 per cent since the merger was first announced in Oct. 9, steeper than the 11 per cent drop in RHB's shares, making the deal unattractive to RHB shaeholders.

If the deal was called off, it would add to recent issues with state-linked Malaysian firms after 1Malaysia Development Bhd missed the repayment of a RM2 billion bridge loan that was due end-December.

The proposed transaction was structured as a reverse merger, with smaller RHB to issue shares to acquire CIMB, Malaysia's largest bank. That method was seen as a way to overcome potential opposition from RHB's second-largest shareholder, Aabar Investments PJSC, which paid RM10.80 a share when it bought its stake in 2011.

The Malaysian stock exchange has ruled that RHB's largest shareholder, Employees Provident Fund, can't vote on the deal, making it more important to convince other investors of its merits.

Shares of CIMB rose as much as 5.8 per cent to a one-week high, while RHB gained 1.9 per cent and MBSB fell 5.02 per cent.

The merger would have been Malaysia's largest ever if completed, and it was the biggest Asian M&A transaction announced in the fourth quarter, data compiled by Bloomberg show.