KUALA LUMPUR: EON Capital Bhd (EONCap) is unlikely to see an end to its boardroom tussle at the extraordinary general meeting (EGM) on Monday to seek shareholders’ approval for the appointment of eight new directors, as certain shareholders may dispute some terms set in the EGM notice.

A source said the contentious point in the EGM notice is the way it was phrased, whereby shareholders are to vote whether they are for or against the appointment of the eight new directors with immediate effect.

“According to Section 55 of the BAFIA (Banking and Financial Institutions Act), it says no person shall accept appointment or election as a director of a licensed institution unless he has, prior to such acceptance, obtained the written consent of the Bank (Bank Negara Malaysia) to accept the same,” a source explained.

Hence, certain shareholders opined that based on such rules set out, the EGM should be null and void as the eight directors that had consented to take up the roles have yet to receive Bank Negara’s approval on their appointment, the source said.

Sources said shareholders such as Primus Pacific Partners may raise the issue with the banking group chairman at the EGM on Monday.

“As a shareholder against the proposed appointments, Primus may voice out this issue to the EONCap chairman who then has to decide on the legality of the notice,” the source said.

Nevertheless, industry observers said should the EONCap chairman decide to declare the EGM null and void, major shareholder Rin Kei Mei, who holds a 15.4% stake in EONCap, could requisite another EGM to remove the chairman, resulting in a long-drawn affair for the banking group.

An industry observer opined it would be more accurate if Rin had requisitioned the EGM for shareholders to vote for new directors to be nominated for appointment, subject to Bank Negara’s approval.  

It is not certain if Rin has written to the central bank seeking its approval for the appointment of the eight prior to the EGM.

Additionally, a source said that although the eight directors up for appointment to the EONCap board were already directors in several insurance companies, it did not mean their appointment to the banking group’s board would be automatically approved by Bank Negara.

“The directors will still have to go through a fit and proper test by Bank Negara to gauge whether they are competent in fulfilling their responsibilities to the interests of the bank,” the source said.

Additionally, according to corporate governance guidelines for licensed institutions by Bank Negara, directors should be from diverse backgrounds and have experience in various disciplines.

However, the source said based on Rin’s choice of new directors, it did not appear that they had diverse backgrounds as most of them were in the insurance industry.

“Also, Rin’s move to seek appointment of eight new directors will not result in a balanced board, as his stake in the banking group is only 15.46% and hence, the additional directors are not reflecting his investments in EONCap,” the source said.

In early February, Rin, who holds the stake in EONCap via Kualapura Sdn Bhd and Lintang Emas Sdn Bhd, had requisitioned for an EGM to appoint eight new directors to its board, after the board rejected Hong Leong Bank Bhd’s (HLBB) offer to take over EONCap’s assets and liabilities for RM4.92 billion or RM7.10 per share, causing the offer to lapse.

A source said Primus, which has a 20.2% stake and board representation in EONCap, was unhappy that it was not getting a good value for its investments now, after building a stronger franchise in EONCap.

“But at the same time, it understands that Rin and Khazanah Nasional want to cash out of the banking group. Hence, Primus wants Rin to give it more time to grow the bank and find a buyer that can offer a higher price than what HLBB had offered,” the source said.

The source said Primus believed that the growth of EONCap would accelerate beyond 2010, and hence, it could fetch a higher price for the shareholders that want to sell.

“Primus wants to have more time also because it cannot simply negotiate with any potential buyer without seeking Bank Negara’s approval,” the source said.

Following Rin’s requisition for an EGM to appoint new directors to EONCap board, he had also sought HLBB’s approval to extend its takeover offer but was rejected as HLBB said the offer had lapsed and that it was not told of a change in EONCap’s decision.

Primus and Rin were reportedly not seeing eye-to-eye, following the former’s decision to call the US$225 million (RM765 million) subordinated debt papers and replaced them with RM655 million subdebt. Rin was also upset that Primus had wanted to make a cash call from shareholders but the plan was scrapped.

Industry observers said Primus might not be favoured by Bank Negara, mainly due to its proposed capital-raising activities last year. The central bank had rejected EONCap’s proposal to issue 58.7 million warrants to Primus, which effectively would raise its stake in the banking group.