Abu Dhabi state fund Aabar Investments may refuse to invest in a MYR2.5 billion ($565 million) rights issue by RHB Capital, to signal disappointment among Gulf investors with economic and political instability in Malaysia, Reuters reported.
Three sources with knowledge of the matter told the news wire in the last few days that Aabar was unlikely to buy into the offer, at least partly because it was disappointed by the performance of its investment in RHB as Malaysia’s currency and financial markets sag.
RHB, Malaysia’s fourth largest bank by assets, had announced the rights issue in April to support its growth and meet regulatory requirements for capital. Aabar owns about 21 per cent of the bank.
However, a Malaysian investment banker in contact with RHB said Aabar is not too happy with their investment in RHB and are not going to subscribe.
Spokesmen for Aabar and RHB declined to comment.
Last week, the bank said that it was extending the period for subscriptions to its rights issue by nearly two months, after Malaysia’s central bank ordered that Aabar be allowed to buy no more than 15 per cent of the rights – a restriction included in the 2011 deal through which Aabar purchased its original stake.
The closing of the offer was delayed to November 23 “to allow time for the board to engage with the relevant regulators and to deliberate and implement the rights issue in the most efficient manner, after considering the order”, RHB said in a stock exchange filing.
Reuters found out from sources, however, that regardless of the 15 per cent restriction, Aabar was reluctant to buy any rights.
A second investment banker in Malaysia said he had been told by Aabar executives that the Abu Dhabi fund was not subscribing at all. There was hardly any communication between Aabar and RHB, the banker said.
A source close to the senior management of Abu Dhabi’s state-owned International Petroleum Investment Co (IPIC), the parent of Aabar, said Aabar was unlikely to subscribe.
He also said any investment by Aabar was unlikely for the foreseeable future until management changes there were completed.
Aabar appointed a new chief executive, Mohamed al-Mehairi, last month while its chairman stepped down earlier this year.
Abu Dhabi and Malaysia have close investment and diplomatic ties, which strengthened after the 2008-09 global financial crisis. The relationship allowed Abu Dhabi to deploy some of its vast oil wealth in Malaysia.
The impetus for the relationship may have changed at least temporarily, however, as the Malaysian economy has run into headwinds and low oil prices have slashed the financial surplus which Abu Dhabi has available to invest abroad, Reuters reported.
In May, IPIC effectively agreed to bail out loss-making state fund 1Malaysia Development Bhd (1MDB), undertaking to provide it with $1 billion in cash, assume $3.5 billion of 1MDB debt and forgive an undisclosed amount of debt owed to IPIC by 1MDB.
In exchange, IPIC was to receive assets from 1MDB. These assets have still not been publicly named, and their value may have declined in recent months as the Malaysian ringgit has tumbled and the controversy over 1MDB’s operations has increased, putting pressure on Prime Minister Mohd Najib Abdul Razak’s government.
Shares in RHB are down 21 per cent since the end of 2014 and 44 percent lower than the price at which Aabar bought its RHB stake from Abu Dhabi Commercial Bank in June 2011. The stake is now worth about $740 million.