Malaysia reviews Chinese bank investment

CCB's largest shareholder is Central Huijin Investment Ltd which is a state-owned investment company in China.

Under Malaysia's Banking and Financial Institutions Act (Bafia), no single party is supposed to own more than one banking licence.

This is the same complication affecting Abu Dhabi Commercial Bank's (ADCB) investment in RHB Capital Bhd.

Last year, the National Bank of Abu Dhabi was granted a commercial bank licence, along with four other foreign banks, following the announcement of further liberalisation of the financial services subsector.

Both ADCB and the National Bank of Abu Dhabi are ultimately owned by the Abu Dhabi government.

ADCB, the 25 percent investor in RHB Capital, had recently engaged Goldman Sachs and Bank of America-Merrill Lynch for the sale of its stake.

CCB's interest in EON Cap goes back a few years as it had been reported that the Chinese bank was keen to buy shares in EON Cap from Primus Pacific Partners Ltd, the Hong Kong-based private equity fund that is at the centre of EON Cap's takeover saga.

The deal didn't materialise for a number of reasons including regulatory and pricing issues, industry observers said.

Bafia imposes other restrictions on ownership of banks. Under Bafia, a single individual and a single corporation are not allowed to own more than l0 percent and 20 percent respectively of the total shareholding of any bank.

There are, however, exemptions granted on a case-by-case basis. For example, the Employees Provident Fund (EPF) owns 45 percent in RHB, while there are a number of individuals who own more than 10% in Malaysian banks. AmBank's Tan Sri Azman Hashim has made an effort to pare down his stake in the group.

Another significant Bafia rule is that foreign parties can only own up to 30 percent of local banks, which means that CCB will not be allowed to make an offer to buy all the shares in EON Cap.

Most analysts believe that the court would rule in favour of an EON Cap-HLB merger as it is in line with the central bank's aspirations for further consolidation in the country's banking sector.

“HLB's offer will still be more enticing as it is a 100 percent cash takeover that will benefit all shareholders versus CCB, which may only benefit selected shareholders given Bank Negara's 30% cap on foreign shareholders,” said OSK Research.