PETALING JAYA: RHB Capital Bhd (RHBCap), which is undertaking a major corporate restructuring, may dispose of or reduce its interest in its insurance arm, RHB Insurance Bhd, to further unlock value in the group.
Sources said the insurance arm contributed only 3% of the group’s earnings.
“The trend now is for banks to tie up with a partner who is a dedicated insurance player. CIMB has done it. So have Affin and others. It only makes sense for RHB Bank to follow suit,” said the source. “The disposal of the insurance arm will faciliate profit growth and better drive capital and tax efficiency moving forward.”
RHB Capital controls 94.7% of RHB Insurance and 100% of RHB Bank.
Under the group’s corporate restructuring announced on Monday, RHBCap said it would, among others, undertake a reorganisation exercise with its banking arm RHB Bank acquiring from the former its entire equity interest in RHB Investment Bank, RHB Insurance and the assets and liabilities of the other operating subsidiaries of the group. The total disposal consideration would be determined later.
As RHB Bank will acquire more than 33% of RHB Insurance, it has to make an offer for the rest of the shares it does not own in the insurance arm.
The move would transform the RHB banking group into a bank “holding company” structure in line with major regional banking groups in Asean.
An analyst said that the group’s focus to be a regional banking group would not fit well if it had both banking and the insurance business in its stable.
Without the insurance arm, the group would better manage its costs which would facilitate its expansion plans in investment, corporate, commercial and Islamic banking activities.
Insurance companies that are backed by banks generally command a higher premium because of a captive market in the form of the bank’s customers.
For example, MPHB Capital Bhd’s 49% stake in Multi-Purpose Insurans Bhd was valued at RM355.8mil that translated into a price to book of 2.45 times.
He opined that RHB Insurance, as a general insurer, could fetch much higher valuations considering its captive market.
The average valuation for general insurers, according to analysts, is at 1.9 times price-to-book but much of this depend on the niche and value an insurer has to offer.
RHB Insurance’s net profit for financial year 2013 stood at RM71mil, gross premium was close to RM536mil and investment income was at RM 23.5mil.
The corporate exercise unveiled by RHBCap covered four main parts - rights issue, internal reorganisation, distribution and capital repayment and transfer of listing status. The banking group has proposed to raise, via a renounceable rights issue, RM2.5bil to meet its requirements under Basel III and future growth requirements.
It had said that in the event the internal reorganisation was not implemented, the proceeds from the rights issue would be utilised to repay RHBCap’s borrowings. As of end-2014, the company and group total borrowings stood at RM3.11bil and RM12.39bil, respectively.
The actual gross proceeds from the proposed rights issue would be determined on the final issue price and the number of rights shares to be issued.
For illustration purposes, the rights issue will be priced at a discount of between 20% and 30% to the theoretical ex-rights price based on a five-day weighted average market price of the stock. It also announced that the proposed distribution and capital repayment would only be determined upon the completion of the rights issue exercise.
Meanwhile, in response to the article, RHB Capital Bhd clarified the company currently has no intention of disposing nor reducing its interests in its insurance arm, RHB Insurance.
It said the company had earlier announced plans to undertake an internal restructuring exercise to streamline the businesses of RHB Capital group under RHB Bank which will involve the transfer of certain operating subsidiaries including RHB Insurance, to RHB Bank.
“The proposed restructuring exercise does not involve the disposal of any of our subsidiaries to third parties.
“The proposals under the restructuring exercise are subject to the approval of relevant authorities including Securities Commission, Bursa Securities, Ministry of Finance and Bank Negara Malaysia,” said RHB Capital.