Malaysia’s BIMB Holdings Bhd will pay US$884 million to gain full control of Bank Islam, the country’s oldest and largest standalone Islamic bank, in a deal that will help it expand in a rapidly growing sector.

Islamic finance in Malaysia, which has seen regulatory reforms boost its share of the country’s total banking assets to more than 20 percent, has seen major consolidation as banks seek to manage operational costs and win bigger deals.

BIMB, which currently owns 49 percent of Bank Islam, will pay for a 30.5 percent stake from a unit of Dubai Group for US$550 million.

Dubai Group, the financial services arm of ruler Sheikh Mohammed bin Rashid al-Maktoum’s Dubai Holding Llc, is mired in serious financial trouble with debts said to exceed US$10 billion and its assets worth only a fraction of that.

BIMB will acquire the remaining 18.5 percent from Tabung Haji, a domestic pilgrim fund and BIMB's biggest stakeholder, for US$334.6 million.

It will pay for the acquisitions through a renounceable rights issue of RM1.5 billion and a 10-year Islamic bond of RM1.5 billion.

The acquisitions are subject to approval by regulators and the Finance Ministry.

Negotiations between Dubai Group and BIMB Holdings, which began in Oct 2012, had been granted two extensions by Malaysia’s central bank.

Dubai Group holds a global portfolio which includes an interest in Oman’s Bank Muscat and Greek investment company Marfin Investment Group.

- Reuters