Islamic banking group Kuwait Finance House (KFH) will lead a RM12 billion bid for a Malaysian bank in a bid to create the world's largest Islamic bank.

KFH said the consortium had made a "very attractive offer" to buy the Utama Banking Group's entire stake in Rashid Hussein Berhad (RHB), Malaysia's fourth largest lender.

The Utama Banking Group (UBG) is the single largest shareholder in debt-ridden RHB, holding a 33 percent stake.

"The consortium could invest in excess of RM12 billion for this project. This will be one of the largest, single (foreign direct investment) into Malaysia," KFH said in a statement late Monday.

Despite being the majority shareholder if the deal came through, KFH insisted "RHB will not be foreign controlled but will operate as an Islamic brotherhood partnership."

It said the consortium - about which no details have been released - aimed to "create the world's largest, most innovative, and respectable Islamic bank with extensive networks across the world based out of Malaysia."

Under its offer, the consortium said it was prepared to eliminate all debts at RHB if it received shareholder support. RHB had debts of some RM4.5 billion as of September 2006, according to analysts.

Mega Islamic bank

It also said it had no plans to sack RHB's workforce "since the motivation behind the transaction is to expand into a mega Islamic bank."

The New Straits Times on Tuesday reported the consortium consisted of government-linked funds and institutional investors.

Citing unnamed sources, it also said that Malaysian banking group, EON Capital Berhad, was preparing to make a bid for UBG's stake.

Hong Kong's Primus Pacific Partners Ltd is reportedly another rival bidder for UBG's stake in RHB, with a plan to wipe 50 percent off its debts and the balance to be redeemed over three years.