Jakarta. The public investors will see their shares in the state-controlled Islamic lender Bank BRISyariah diluted to 4.4 percent, from 18.4 percent currently, after the bank's merger with peers Bank Syariah Mandiri and Bank BNI Syariah, the company prospectus showed on Wednesday. 

The publicly listed BRI Syariah is the surviving entity in a government push to consolidate the Shariah units under state-controlled lenders to create the country's largest Islamic bank. 

Under the plan, Bank Mandiri would become the large shareholder in the surviving entity with 51.2 percent shares. Bank Negara Indonesia (BNI) will own 25 percent, Bank Rakyat Indonesia (BRI) only has 17.4 percent. The remaining shares are owned by BRI's pension funds, insurer BNI Life and Mandiri Sekuritas. 

The shareholder's composition is derived from the valuation of each bank before the merger. Bank Syariah Mandiri was the largest, valued at Rp 16.3 trillion. BNI Syariah comes second at Rp 7.99 trillion and BRISyariah at Rp 7.59 trillion. 

That put BRISyariah valuation at Rp 781 per share, or 44 percent below the market price on Wednesday. The share fell 6.8 percent further on Thursday to trade at 1,300 apiece. 

"We see that this will have an impact on the local investors that currently owns most of the [publicly traded] shares," Pilarmas Investindo Sekuritas said in a note to the client on Thursday. 

"Although the percentage of ownership decreases, the company value will increase after the merger," said Pilarmas.

BRISyariah minority shareholders who disagreed with the merger can sell their shares to the parent bank BRI at Rp 781 per share. 

The significantly lower public ownership in BRISyariah also put the lender at odds with the local bourse. Indonesia Stock Exchange required that all listed companies must have at least 7.5 percent of the shares floated in the market. 

According to the burse rule, BRISyariah has at least two years to sell some of its shares to the public after the merger is complete to meet the requirement.

The merger is still subject to shareholders and the Financial Services Authority's approval. According to the prospectus, BRISyariah aimed for the legal merger day on Feb 1 next year and financial close on March 5, next year.