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‘MBSB-MIDF merger to be completed by 1Q2023’

MALAYSIA Building Society Bhd (MBSB)’s planned acquisition of Malaysian Industrial Development Finance Bhd (MIDF) is anticipated to be completed by the first quarter of next year, possibly as early as February, sources say.

“That’s the target,” a source familiar with the matter tells The Edge. “Based on the expected timelines, [the parties] hope to get Bank Negara Malaysia’s approval for the deal before the end of this year, after which the next course of action would be for MBSB to hold an EGM (extraordinary general meeting) to get shareholder approval. Everything should be wrapped up by the first quarter of 2023.

“Then, comes [months of merger] integration work. MBSB and MIDF should be run as one entity by 2024.”

As for who will lead the merged entity, the source says MBSB’s board is carrying out “a process for CEO selection”. The choice is expected to lie with MBSB, given that it is the acquirer and by far the bigger of the two entities.

MBSB, which is 65.87%-owned by the Employees Provident Fund (EPF), is led by CEO Datuk Nor Azam M Taib, who is said to be a key contender. Nor Azam, 55, was confirmed as MBSB’s CEO on July 1 after having served in an acting capacity since August 2021, following the demise of the previous CEO.

Meanwhile, MIDF, which is wholly owned by Permodalan Nasional Bhd (PNB), is led by group managing director Datuk Charon Wardini Mokhzani, whose previous banking experience includes being CEO of CIMB Investment Bank Bhd.

Main Market-listed MBSB announced in a stock exchange filing on Oct 21 that it had made an application to Bank Negara Malaysia seeking approval for its acquisition of MIDF from PNB to form a universal Islamic banking group.

MBSB has not provided details of the proposed merger, but it is widely known that it will be effected entirely via a share swap. Market talk has it that the deal values MIDF — a development financial institution — at less than one time book value. Bloomberg data shows MBSB itself is trading at 0.49 times PBV (price-to-book value).

Sources say the EPF is expected to emerge as the single-largest shareholder in the merged entity. PNB is expected to hold a stake of less than 20%, according to one source.

Staff layoffs are “definitely not on the cards”, says another, given that the merger of the lenders would be complementary from a business standpoint.

MBSB is mainly a consumer banking business, whereas MIDF has investment banking and asset management businesses — which MBSB does not — and lends mainly to small and medium enterprises.

“There’s a lot more cross-selling that they [MBSB] can leverage as an Islamic universal banking group. At the moment, without a full suite of offerings, it’s tough for them to compete with even the smallest banking group,” the source points out.

MBSB, in a press statement on Oct 21, says the universal Islamic banking group is envisaged to offer a wider range of financial solutions to a broader range of customers.

To be clear, all banks licensed under Malaysia’s Islamic Financial Services Act 2013 are considered universal Islamic banks, according to industry sources. “However, not all engage in the full suite of services,” one tells The Edge.

As at end-June, MBSB’s asset size stood at RM50.85 billion, while MIDF’s was RM8.53 billion. The merger would solidify MBSB’s position as the nation’s second-largest stand-alone Islamic bank by assets, behind Bank Islam Malaysia Bhd, whose assets totalled RM83.03 billion as at June 30.

As for MIDF, the merger would enable it to clinch an Islamic banking licence and widen its business scope.

Meanwhile, sources say the EPF-owned MBSB is unlikely to move the merged entity into the PNB-owned Menara Merdeka 118, the world’s second-tallest building. This is because MBSB already has  a brand new 26-storey head office (MBSB Tower) in PJ Sentral, Petaling Jaya on top of its old Wisma MBSB building in Damansara Heights, Kuala Lumpur, both of which it owns.

It is understood that MIDF has given only a “soft commitment” to PNB to take up space in the upcoming Merdeka 118, says one source.

MBSB reported a net profit of RM142.3 million for the second quarter of the financial year ending Dec 31, 2022, down 64.7% from RM403.4 million in the same quarter a year ago, owing to higher operating expenses and net impairment allowance. Revenue declined slightly to RM656.27 million from RM664.94 million.

For the first six months of FY2022, net profit fell 57% year on year to RM200.5 million, while revenue dropped to RM1.32 billion from RM1.35 billion.

As for MIDF, its 2QFY2022 net profit fell 42.9% y-o-y to RM10.67 million as operating revenue dipped to RM98 million from RM99 million. Its 1HFY2022 net profit grew 2.7% y-o-y to RM26.9 million, while revenue slipped to RM188.4 million from RM188.8 million.

MBSB’s share price, which has gained 8.4% so far this year, closed at 58 sen on Nov 4, giving the company a market capitalisation of RM4.16 billion.  

http://www.theedgemarkets.com/article/mbsbmidf-merger-be-completed-1q2023

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