23 Aug 2017
The Edge : RHB-AMMB merger off the table
RHB-AMMB merger off the table
Adeline Paul Raj & Billy Toh / The Edge Financial Daily 
August 23, 2017 08:54 am MY 

KUALA LUMPUR: The proposed merger between RHB Bank Bhd and AMMB Holdings Bhd is off the table after both banking groups mutually agreed to end discussions, prompting questions over what went wrong.

In a joint statement late yesterday, they said that after much discussion and deliberation, they were “not able to reach an agreement on mutually acceptable terms and conditions for the proposed merger”. They did not elaborate.

The collapsed talks came as a surprise to some in the industry, given that there had been a strong desire from the key shareholders of both parties to see a deal through.

An investment manager noted that it had seemed like a “done deal” particularly after Retirement Fund Inc (KWAP) said it was keen to take up Australia and New Zealand Banking Group Ltd’s (ANZ) stake in the merged entity. (ANZ, a 23.8% shareholder of AMMB, had been looking to exit the group).

Still, there were rumblings early this week that all might not be well.

AMMB strongly denies market talk that large contingent liabilities, which could be related to 1Malaysia Development Bhd, had been found during the due diligence process.

“Our contingent liabilities are normal and not a cause for concern. It would not have affected merger possibilities in any way,” a spokesman told The Edge Financial Daily yesterday.

Bank Negara Malaysia on June 1 allowed the two groups to start exclusive merger talks and gave them three months to negotiate and finalise pricing, structure and other terms.

According to sources, the past few months were focused on completing management due diligence and discussing the business plan for the merged entity. Only a preliminary financial due diligence had been done and valuations had been based on audited accounts.

“Unfortunately, there were some roadblocks in terms of negotiation points, especially on pricing considerations,” one of the sources said.

According to the source, one of AMMB’s concerns related to the significantly large loan loss coverage required of RHB for its oil and gas loans.

A separate source said there were also some concerns by RHB about high provisions required for some of AMMB’s property-related corporate loans.

Both banks had been trading at just under one time book value just prior to starting the merger talks. The Edge Financial Daily reported earlier in June that their merger plan involved RHB buying all of AMMB’s assets and liabilities in an all-share deal that would likely be done at one time book value.

KWAP chief executive officer (CEO) Datuk Wan Kamaruzaman told The Edge Financial Daily on Monday that KWAP was not involved in the due diligence process and would only look into negotiations for a stake in the merged entity if the proposed merger went through.

Meanwhile, both banks said they would continue with their respective growth plans.

“With this decision, we will now continue to execute our initiatives under our current strategy to create value for our shareholders, and focus on delivering superior customer experience,” RHB Bank group managing director Datuk Khairussaleh Ramli said in the statement.

AMMB group CEO Datuk Sulaiman Mohd Tahir said: “Given the heritage and strength of the AmBank Group, we are confident of moving forward despite the fact that the merger did not materialise. Our group’s strategy and direction remain the same as we aspire to deliver on our group’s Top 4 growth aspirations. We remain focused on our [financial year 2018] business plan in line with the group’s Top 4 strategy as we work towards running the bank better and changing the bank while delivering optimal returns for our shareholders.”

The shares in both banks are due to resume trading today after being suspended yesterday pending the announcement. RHB and AMMB were last traded at RM4.88 and RM4.70 respectively as of the closing on Monday.