A merger between the two banking groups will be dilutive and unlikely to be well received by the market, the research house said in a note today.
Given concerns over shareholder dilution and post-merger direction, it said neither of the two likely merger scenarios, where Affin acquires AMMB or vice versa, appear particularly attractive.
CIMB’s note follows a recent report that the Sarawak government was mulling buying a stake in another bank to merge with Affin, in which it has a 31.3% stake.
Sarawak acquired a 27% stake in Affin for RM1.78 billion from the Armed Forces Fund Board (LTAT) and its unit Boustead Holdings Bhd last November. Prior to that, it had a 4.8% stake in the mid-sized bank.
According to reports, Sarawak was said to have approached Azman Hashim, who holds an 11.8% stake in AMMB through Amcorp Group Bhd, but talks have not moved forward.
Meanwhile, Kuching has denied formal talks but has indicated openness to collaboration.
AMMB wholly owns AmBank (M) Bhd, the country’s sixth-largest banking group in terms of assets while Affin Bank is at No 7 among Malaysia’s eight banking groups.
Both merger scenarios would involve significant new share issuance. In the first scenario where Affin acquires AMMB, it would need to issue about 7.7 billion new shares, ramping up its total share base to over 10 billion.
This would dilute the Sarawak government’s stake to just 7.7% while Amcorp’s holding would rise to 8.9%, making it the largest shareholder in the enlarged entity.
“We believe Scenario 1 is unlikely, as the Sarawak government’s stake would be significantly diluted,” CIMB said.
In the other scenario where AMMB acquires Affin, the former’s share base would rise by nearly 64%. In this case, Sarawak would retain a 12.2% stake in the combined entity while Amcorp’s interest would fall to 7.2%.
Noting that AMMB’s share price dropped following the merger speculation, CIMB believes this reflects “investor unease” over potential changes in AMMB’s strategic direction and the lack of clarity surrounding the proposed deal.
“Overall, we are not particularly enthusiastic about the potential merger under either scenario,” it concluded.
Earlier reports said the Sarawak government had also considered Bank Muamalat Bhd, which is controlled by Syed Mokhtar Albukhary’s DRB-Hicom Bhd, and Kuwait Finance House (M) Bhd, before reaching out to Amcorp Group.
Affin’s shares closed at RM2.71 today, valuing it at RM6.87 billion while AmBank was unchanged at RM5.36, giving it a market capitalisation of RM17.73 billion.