Bidding war over Malaysia's RHB

Kuwait Finance House offers to buy a controlling stake in Rashid Hussain Bhd.
Middle East consortium, Kuwait Finance House, has bid M$2.16 billion ($618 million) for a stake in the debt-ridden Rashid Hussain Bhd (RHB), in an effort to create the worldÆs largest Islamic bank. The offer was conditionally accepted last Wednesday.

But this is by no means a done deal. Later on Wednesday afternoon, Malaysia's EON Capital Bhd launched its own takeover bid for RHB.

HereÆs the flow-chart of the offer so far: Kuwait Finance House has offered (through its Malaysian subsidiary KFHMB) to buy Utama Banking GroupÆs 32% stake in RHB, which is the parent of MalaysiaÆs fourth-largest lender, RHB Capital. Utama is currently the single-largest shareholder in RHB, but just barely - the Employees Provident Fund owns 31% of RHB and is said to be considering making an offer.

Kuwait Finance HouseÆs offer is payable in cash and equity in a special purpose vehicle (SPV) that is to be formed to hold the acquired stake. The offer is for Utama to receive M$2.16 billion payable in cash, with an option for it to buy up to 20% of the voting share capital of the SPV at up to M$510 million.

"After due deliberation, we are pleased to announce that the board has unanimously decided to accept KFHMB's offer on a conditional basis," Utama said in a statement to Bursa Malaysia, the countryÆs bourse. It also added that it will end talks to sell its stake to Hong Kong's Primus Pacific Partners Ltd.

However, EON Capital, a smaller Malaysian bank known for its consumer lending, also made an offer û and suspended trading on the bourse on Wednesday (February 7) as well. It offered M$1.80 per RHB share and offered M$8.75 billion, (or M$4.80 a share) for the assets of RHB Capital.

According to analysts, on a fully diluted basis, the Kuwait Finance-led consortium offer is about M$2 for each RHB share. That's a premium of about a fifth to the M$1.68 per share price of the stock before trading was halted in anticipation of an announcement.

"The enlarged EON Capital Group would potentially be the third largest domestic banking group in Malaysia with total assets of M$45 billion," EON Capital said in a statement to the bourse. "As a larger banking group, the Group is expected to have a stronger footing to face the impending globalisation and liberalisation of the financial services industry."

EON Capital is jointly controlled by Rin Kei Mei and Tan Sri Tiong Hiew King, with 15.5% and 17.1%, respectively. The single largest shareholder is DRB-Hicom Bhd with 20%, while Khazanah Nasional Bhd has 10%.

And there is market speculation that the Employees Provident Fund may make an offer. This is to be expected, since the central bank loosened rules in November and now allows financial services companies to consider offers by more than one suitor at a time.

For now, though, letÆs consider the Middle Eastern offer. Kuwait Finance House is leading the consortium which includes undisclosed private investors as well as the Gulf Cooperation Council comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The group said that it is willing to invest more than $3.4 billion in RHB and RHB Capital to clear debts (RHB is saddled with at least M$5.1 billion in outstanding debt) and expand the business, in an effort to build a bank that will be follow Islamic banking practices. Given that about 60% of MalaysiaÆs population are Muslim itÆs a sensible market to target. And Malaysia has long been trying to woo petrodollars to the region.

So who is Kuwait Finance House? Incorporated in Kuwait in 1977, it is listed on the Kuwait Stock Exchange with a market capitalisation of $1.95 billion as of 31 December 2001 û the most recent numbers it's offering. The government of Kuwait owns 49% of the equity, and the general public holds the remaining shares. It bills itself as providing Islamic banking services, and its spectrum of activities include consumer banking, real estate financing, lease financing, trade finance and portfolio investing, all of which are conducted in strict compliance with Islamic Shariah law. It says that it holds 20% of KuwaitÆs total deposit base, in 29 branches that have separate sections for ladies.
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