New owner of Malaysia's RHB bank eyes CIMB - source

(Recasts, adds more quotes, background)

By Mark Bendeich

KUALA LUMPUR, April 4 (Reuters) - The new owner of Malaysia's fourth-largest lender, RHB Bank, sees larger rival CIMB Bank as a likely merger partner for RHB, which together could become a regional heavyweight, a source close to the situation said.

RHB banking group RHBS.KL (RHBC.KL) is being taken over by Malaysia's state pension fund after it won a $3.68 billion bid battle last month. The fund aims to sell down its stake and bring in strategic investors to help run and grow the business.

"CIMB and RHB would be a very good fit and a very good consolidation," the source told Reuters, noting that RHB was strong in retail banking, with about 200 branches nationwide, while CIMB was strong in investment and wholesale banking.

"They have a very strong investment bank which RHB can supplement."

He added that, together, CIMB and RHB would rival top lender Malayan Banking Bhd (MBBM.KL) for size, large enough to expand into Southeast Asia and compete with regional banks.

The Employees Provident Fund, with assets of around $80 billion, declined to comment. CIMB also declined to comment.

CIMB, Malaysia's second-largest lender and a unit of Bumiputra-Commerce Holdings Bhd BUCM.KL, and RHB would have combined assets of around $70 billion, edging out Maybank as the country's biggest lender, according to Reuters data and stock exchange filings.

Such a merger would be a second-stage step, the source said.

The fund's first priority was to restructure debt-laden RHB, cut costs and sell a minority stake to strategic partners, the source said, adding that it could sell the first 5-10 percent tranche by year-end, followed by a 20-25 percent stake.

The fund hopes to reduce its holding to 35 percent by the middle of 2008. At least 25 percent would also be re-floated on the Malaysian stock exchange this year.

MOVING QUICKLY

They "have to do this quickly, reduce this quickly", the source said, adding that the fund's controversial move to take full ownership of such a large bank was based on valuation and a belief in the future of the Malaysian banking industry.

"This is a one-off deal. This is something that will come in rarely," the source said.

The fund aims to hire an international investment bank within two months to start a world-wide search for potential partners, the source said, adding that the fund would also need to seek central bank approval to begin multiple-party talks.

The fund is buying RHB Capital, the bank's immediate parent firm, for about 1.8 times book value. It is prepared to sell a stake in the restructured RHB at 2.4-2.5 times, the source said. Bumi-Commerce and Maybank are at around three times book.

Interest in RHB was likely to come from international banks without a Malaysian presence, including some from Australia, Japan, China, South Korea and the Middle East, he said. On Wednesday, Canada's Bank of Nova Scotia (BNS.TO) said it was open to talks to buy a stake in RHB.

The Financial Times said last month that the fund was expected to approach British banks Barclays (BARC.L) and Royal Bank of Scotland (RBS.L), but the source said these were among many banks the fund's investment bank might contact.

RHB also offers major cost savings, perhaps more than 5 percent of the existing cost base, by rationalising back-office functions, switching to central purchasing, outsourcing some non-banking tasks and investing in new technology, he said.

The bank was also now likely to consider offering a voluntary scheme to shed jobs, the source added.

The fund is also interested in Kuwait Finance House (KFIN.KW) taking a stake in RHB Islamic Bank, a standalone unit of RHB, though this would mean the Middle East investment bank forgoing its existing Islamic banking licence, the source said.

Kuwait Finance House led a failed consortium bid for the RHB group but has expressed a desire to work with the pension fund.

((Editing by Kim Coghill; Reuters Messaging mark.bendeich.reuters.com@reuters.net; Kuala Lumpur newsroom areuters@gmail.com; +603 22756833))

($1=3.456 Malaysian Ringgit) Keywords: RASHID/CIMB

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