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Malaysia Building Society Bhd (MBSB) is buying Asian Finance Bank Bhd (AFB) for RM644.95 million in cash and new MBSB shares.

MBSB, whose controlling shareholder is the Employees Provident Fund with a 65.56 per cent stake, told Bursa Malaysia that the proposed merger would result in it becoming a full-fledged Islamic bank.

MBSB entered into a conditional share purchase agreement with the shareholders of AFB, today.

AFB shareholders are Qatar Islamic Bank holding 66.66 per cent, Financial Assets Bahrain WLL (6.67 per cent), RUSD Investment Bank Inc (16.67 per cent) and Tadhamon International Islamic Bank (10 per cent).

MBSB will pay RM396.89 million in cash and RM255.51 million via the issuance of 225.51 million new MBSB shares at RM1.10 each.

The cash option was based on a valuation of 1.2 times AFB net assets valued at RM496.12 million as at December 2016, while the shares option was based on a valuation of 1.5 times the accepted net asset.

After the proposed merger, EPF’s share in MBSB will slightly dilute to 63.16 per cent, while Qatar’s second largest bank Qatar Islamic Bank, will hold 0.73 per cent, Labuan-based RUSD Investment Bank 1.83 per cent and Yemen-based Tadhamon 1.1 per cent.

MBSB granted AFB vendors the option of cash and new shares after taking into consideration, among others, its capital structure and substantial shareholders’ shareholdings in MBSB.

The RM1.10 issue price represents a discount of about 6.78 per cent to the five-day volume weighted average price of MBSB shares of about RM1.18 up to March 21.

Last Friday, MBSB shares closed at RM1.11. Trading of the company’s shares was suspended today pending this announcement. It will resume trading tomorrow (Tuesday).

MBSB will transfer all of its syariah-compliant assets and liabilities (A&L) to AFB in tranches, for a consideration to be determined later based on the book value of the A&L at the point of transfer.

All the residual conventional financial A&L which cannot be converted into Islamic A&L and non-core A&L of MBSB will be disposed to third parties.

MBSB’s A&L includes RM2.53 billion nominal value of covered sukuk murabahah issued under a 15-year RM3 billion nominal value structured covered sukuk commodity murabahah programme.

MBSB is proposing to exchange the outstanding MBSB covered sukuk with new structured covered sukuk to be issued by AFB under a new structured covered sukuk programme to be set up by the unit.

“The merged entity is expected to leverage on the strength of MBSB’s business and the banking license held by AFB is anticipated to provide a unique opportunity for the merged entity to emerge as a full-fledged Islamic banking franchise in Malaysia,” it said.

MBSB said the proposed merger was expected to be completed by the first quarter of 2018.

The subsequent tranches of the proposed transfer of assets and liabilities and disposal of the residual should complete in three years from the first tranche transfer.

Last year, AFB posted RM3.65 million in net profits.

AFB holds 50 per cent in Safeena (L) Ltd, a jointly-controlled entity with AmanahRaya Investment Bank Ltd, which funds purchase and upkeep of marine vessels.

Re-disseminated by The Asian Banker from New StraitsTimes