By P. Gunasegaram
When the rights of major shareholder the Employees Provident Fund was denied in a major banking merger involving CIMB Group and RHB Capital alarm bells were set off in Tiger’s brain, prompting it to promptly investigate.
On Aug 17, 2007, a special purpose acquisition vehicle called Synergy Drive was given the go ahead by their respective shareholders to acquire the assets of three major plantation groups – Sime Darby, Kumpulan Guthrie and Golden Hope – effectively merging them. (The overall merger also included some other companies.)
Among all three companies, there was one common ultimate shareholder, Permodalan Nasional Bhd or PNB, the operator of the national unit trust scheme and the single largest investor on the local bourse, even eclipsing the Employees Provident Fund or EPF.
And get this, there was NO ruling from regulator Bursa Malaysia that PNB should not vote its very substantial stakes in each of the three companies. PNB then owned quite close to 40% of Sime Darby while it had majority control of Kumpulan Guthrie and Golden Hope.
Bursa then seemed to be implicitly accepting arguments that this was a deal presented to PNB by the investment bankers, who ironically at that time was CIMB Investment Bank.
The deal was done before it even started because PNB, which is owned by Yayasan Pelaburan Bumiputra, and chaired by the prime minister of the day was allowed to vote its stake in all three companies. Besides PNB, other agencies owned by the government or close to it had significant stakes in all three plantation companies.
It is a bit hard to swallow that PNB did not know anything about the deals. If there was a case of conflict of interest and related party transactions, this was clearly it. Yet Bursa Malaysia did not object.
Why is it now objecting to EPF voting its blocks of shares for the merger of CIMB Group with RHB Capital and Malaysia Building Society (MBSB)? Yes, MBSB is a subsidiary of EPF (65%), it owns 41.5% of RHB Capital and a mere 14.5% of CIMB Group which is below the 20% to be considered an associate company. But is that enough reason? Why has it seen fit to break away from established precedent?
Let’s reproduce Bursa’s core reasons as contained in an announcement by MBSB:
“EPF’s position is not the same as the other shareholders of MBSB premised on the following:-
(a) EPF’s controlling stakes in MBSB (64.5%) and RHB Capital (41.5%) place it in a position of significant influence in these companies;
(b) As the single largest shareholder of MBSB and RHB Capital and a major shareholder in CIMB Group, EPF may benefit from the transaction as a shareholder of RHB Capital and/or CIMB Group. As such, its overall position would differ from a party who is merely a shareholder of MBSB, especially given the differing terms and valuations applicable to these three (3) affected companies; and
(c) EPF had prior knowledge of the Proposed Merger as it was notified by CIMB Group before the issuance of the letter of intent by CIMB Group dated 9 July 2014.”
Let’s start with the third reason first. Does prior knowledge itself disqualify EPF in this case? It would if EPF was a majority or controlling shareholder of CIMB but it is not. It would if EPF was involved in the merger deal. There is no evidence to show it is.
Since it has just a 14.5% investment stake in CIMB Group, and no management influence, it should be allowed to vote its shares in a matter where its interests are at stake. Otherwise, it would be denying a major shareholder – and one that represents millions of Malaysian workers – its right to vote on a major decision.
Now, taking Bursa’s first and second reason together, of course EPF has a significant influence in the RHB Cpital and MBSB. Does that mean that it should not vote on it? No, unless there are other situations of conflict. The 14.5% stake in CIMB Group is not controlling although material and other shareholders will hold main sway here.
So long as EPF is not the originator of the CIMB Group proposal to acquire RHB Capital and MBSB, it should be allowed to vote on the deal. At the very least Bursa should have allowed EPF to exercise its votes in RHB Capital and MBSB instead of a blanket refusal.
Such a strange decision from the market regulator will raise eyebrows and questions will emerge as to how powerful is the Abu Dhabi investment group Abaar Investments PJS, an investment arm of the Abu Dhabi government.
Aabar is no ordinary company. It is very closely linked to Malaysia’s own infamous “strategic investment” company 1Malaysia Development Bhd or 1MDB and closely involved with some of 1MDB’s shenanigans which KiniBiz has extensively chronicled here, here and here if you want to read about it.
Aabar, a “strategic” investment company is involved in an RM18 billion “strategic” partnership with 1MDB for the development of the Tun Razak Exchange or TRX, with much of the capital coming from Aabar.
On top of that Aabar’s parent, IPIC, guarantees US$3.5 billion of 1MDB’s loans taken for 1MDB’s energy acquisitions. And Aabar holds an option to subscribe for an initial public offer of 1MDB’s energy assets, whenever that happens.
That should be sufficient to show Aabar’s clout in Malaysia.
Aabar is a potential spoiler of the merger because it has a 21% stake in RHB Capital which it acquired (at that time it acquired a 25% stake) at RM10.80 a share in 2011, when CIMB and Malayan Banking were actually contemplating a takeover offer for RHB Capital.
That deal, basically a swap of the RHB Capital stake from one arm of the Abu Dhabi government to another, and bears no relation to the market price, put paid any offer that Maybank or CIMB were then contemplating for RHB Capital.
Bursa’s decision to exclude EPF from voting its 41.5% stake in RHB Capital puts Abaar in a strong position to spoil a merger yet again. If EPF was allowed to vote it would have been pretty much a done deal for the merger.
Instead it has been stymied by the regulator Bursa Malaysia on rather flimsy reasons. Why? How powerful is Abaar in Malaysia? And why are they so powerful? How far does their influence go?
Press reports put Low Teik Jho or Jho Low as the Malaysian whizz-kid financier who is close to the Abu Dhabi government. Low was one of the persons who set up 1Malaysia Development Bhd in its early stages and is said to be intimately involved in many of its moves.
He is known to be close to prime minister Najib Razak’s wife Rosmah Mansor. The latter’s influence is said to be strong and extensive and includes many businessmen among them.
The ruling by Bursa Malaysia will be considered a victory of sorts to Abaar and by extension to Jho Low and Rosmah. It is undoubtedly a loss for Nazir Razak, ironically the prime minister’s brother, and chairman of CIMB Group which originated the plan.
Right now, the lack of substantive reasons for denying EPF the right to vote must put Bursa Malaysia in a bad light and raise questions as to whether its ruling is one that was made fairly and without duress.
GRRRRR!!!
You must be logged in to post a comment.