KUCHING: Analysts are generally optimistic on RHB Capital Bhd’s (RHB Capital) two key corporate moves but believes this will be dragged by the banking ‘s challenging outlook in 2015.
RHB Capital on Monday proposed a rights issue of up to RM2.5 billion as well as internal restructuring plans involving the removal of its holding company structure.
This leaves RHB Bank, RHB Capital’s operating entity, as the listed company.
The rights proceeds will be injected into RHB Bank as new capital. RHB Capital will then sell assets of RHB Investment Bank (RHB IB) and RHB Insurance to RHB Bank, the proceeds to be used to settle RHB Capital’s debts.
After that, RHB Capital will implement a capital reduction plan and its listed status will be transferred to RHB Bank, which will own RHB Islamic, RHB IB and RHB Insurance.
The entire exercise is expected to be completed by the final quarter of this year.
“There should be no change to the shareholding structure if all of them take up the rights proportionately,” opined analysts at AllianceDBS Research Sdn Bhd in a research note yesterday.
“The EGM is expected to be held end June and the transfer of listing status by end September.”
Pricing of the rights, it said, will be determined later but the management has hinted at a 20-30 per cent discount to RHB Capital’s share price.
“We estimate the entire corporate exercise would dilute earnings per share by circa 10 per cent but would be return on equity accretive because of higher earnings.
“CET1 should improve by 50 basis points to 11.1 per cent. Separately, the 30 per cent minimum payout dividend policy and dividend reinvestment plan are intact.”
Meanwhile, analysts at Maybank Investment Bank Bhd (Maybank IB Research) said the rights issue was larger than its estimate of RM1.5 billion and would entail an approximate one-for-six ratio.
“The positives of the exercise include: an enhanced CET1 ratio of 11 per cent at the group level; reduced goodwill to RM3 billion; improved return on equities, elimination of the group’s double leverage problem, and reduced interest costs and earnings uplift of about RM120 million per annum.”
On the flip side, Maybank IB ERsearch estimated a 29 per cent dilution to FY16’s earnings per share as a result of this exercise.
“Based on a theoretical ex-rights price of RM7.84, the revamped RHB Group would trade at a prospective FY16 PER of 12.6 times and price to book value of 1.3 times, by our estimates, versus current valuations of 9.4 times and 0.9 times respectively.
“The higher valuations are justified, in our view, reflecting much of the positives of the exercise.”