MIDF, Al Rajhi merger on track

Proposal has been sent to the central bank

PETALING JAYA: After two extensions, Malaysian Industrial Development Finance Bhd (MIDF) has finally submitted its proposal to merge with Al Rajhi Banking & Investment Corp (M) Bhd to the central bank.

According to sources, the proposal was sent in on Wednesday, two days ahead of the Sept 27 deadline.

It is understood that as a result of the merger, which will be done via a share swap, Permodalan Nasional Bhd (PNB) will end up with a majority stake of over 60% in the merged entity.

The balance equity will be held by the Saudi Arabia-based Al Rajhi Bank, which wholly owns its local entity.

Al Rajhi Bank is the world’s largest Islamic lender by assets.

“The merger will also result in PNB recording a substantial gain on disposal, as the deal is structured as an acquisition of MIDF by Al Rajhi Malaysia,” said a source.

The deal is expected to be completed by the end of this year.

Following the completion, the deal would see MIDF transforming into a full-fledged Islamic bank, which would give it the right to take deposits.

At the moment, the financial institution has investment banking and research operations. Its biggest earnings contributor is investment banking, followed by development finance and asset management.

Meanwhile, Al Rajhi Malaysia is in the commercial and retail banking segment.

“Under the enlarged entity, MIDF would be able to expand its business, including digital banking and new investment products,” another source said.

In terms of assets, Al Rajhi had bigger assets of Rm7.58bil as of Dec 31, 2018, compared to MIDF at Rm5.82bil.

On a back-of-the-envelope calculation, the deal could create an entity with combined net assets of Rm13.4bil.

At the moment, the two biggest standalone Islamic banks in the country are Bank Islam Malaysia Bhd and Bank Muamalat Malaysia Bhd with assets of Rm63.9bil and Rm22.8bil.

It is worth noting that Bank Muamalat had been in several potential merger talks in the past.

Sources said that should the merger between MIDF and Al Rajhi go through, a potential listing could be on the cards.

MIDF was taken private by PNB back in 2007 in an exercise worth Rm1.5bil.

PNB is also the single largest shareholder of the country’s biggest bank based on assets, Malayan Banking Bhd, with a 48.3% stake.

With the merger, PNB would have majority stakes in two banks in the country.

Notably, the merger talks between MIDF and Al Rajhi started in January this year when Bank Negara gave the green light for the two parties to talk for three months to late March.

The deal was later given another two extensions to June 27 and later to Sept 27.

“The two parties want the deal to happen and one of the reasons for the extension is to discuss some of the legal matters,” one source said.

The deal between MIDF and Al Rajhi would mark the second foreign-backed Islamic bank to merge its Malaysian operations with a local financial institution.

In 2017, Malaysia Building Society Bhd

Under the enlarged entity, MIDF would be able to expand its business, including digital banking and new investment products.

Source

bought Asian Finance Bank Bhd from investors, including Qatar Islamic Bank, Financial Assets Bahrain WLL, RUSD Investment Bank Inc and Tadhamon International Islamic Bank.