SHARES of RHB Bhd and its warrants were actively traded and their prices advanced yesterday in anticipation of a merger of its subsidiary, RHB Bank, and another bank.
RHB Bhd’s share price rose 5.5 sen to 65 sen while RHB-WB went up 1 sen to 10.5 sen. RHB-WB was the second most actively-traded stock, with 17.6 million shares changing hands.
Investors seem convinced that Employees Provident Fund (EPF), a major shareholder, exercises greater influence in the affairs of RHB Bhd now and would quickly make a case for a corporate exercise to resolve the company's huge debts.
Utama Banking Group Bhd (UBG) has been identified as RHB Bhd's controlling shareholder since it bought a major stake in the latter company from Tan Sri Rashid Hussain in 2003. A capital restructuring exercise could, however, reduce UBG's stake in RHB Bhd.
RHB Capital announced yesterday Bank Negara has approved its proposed formation of an executive committee or exco that will assume the role of CEO of the company pending the appointment of a CEO.
The exco, which will oversee the day-to-day operations and management aspects of RHB Capital, will comprise Vaseehar Hassan Abdul Razack and Johari Abdul Muid. Both are non-independent, non-executive directors of the company, RHB Capital told Bursa Malaysia.
Vaseehar is a nominee of UBG while Johari is the EPF’s chief investment officer (equity).
Earlier, Datuk Seri Sulaiman Abdul Rahman Taib was RHB Capital’s executive chairman but his application for re-appointment did not receive Bank Negara's approval.
Following this in early August, RHB Bhd’s share price surged on expectation that EPF would execute a capital revamp. He is now a non-executive director.
With the setting up of the exco and Johari's position in it, this is the first time that EPF will have a direct role in supervising the day-to-day operations at RHB Capital.
Before this, EPF’s position in the group was already enhanced when the pension fund's CEO, Datuk Azlan Zainol, was appointed chairman of RHB Bank.
Bankers believe that considering the major exercise to be executed in the RHB group, both Azlan and Johari will be playing a much needed role there to bring back some of the value of its investment in RHB Bhd.
RHB Bhd needs to reduce its debts. Its latest results showed it incurred interest expenses of RM95.5mil in the six months ended June 30, 2005. This could mean that its annual interest expenses could amount to more than RM190mil.
The company had borrowings of RM1.9bil and irredeemable convertible loan stocks of RM1.1bil. These form a total interest-incurring debt of RM3bil.
In addition, RHB Bank has debts of RM1.4bil in the form of irredeemable non-cumulative preference shares (INCPS) that were issued to Danamodal and now held by Bank Negara. These INCPS are said to carry a high interest cost and, therefore, the RHB group wants to buy back and cancel the INCPS.
In total, the RHB group has debts of more than RM4bil that need to be repaid or restructured.
Bankers said they understand its institutional shareholders – EPF and Kumpulan Wang Amanah Pencen (KWAP) – are keen to quickly resolve the debt issue. Such resolution would place RHB Bhd on a stronger financial footing and perhaps improve its value.
RHB Bhd's share price traded around RM7 each in the mid-1990s. The stock closed at 65 sen yesterday as investors priced it after adjusting for its large debts.
A re-capitalisation exercise in RHB Bhd would require an injection of fresh capital. Both EPF and KWAP, being pension funds, have deep pockets to put in more capital.
UBG may find it relatively more difficult to inject more capital funds into RHB Bhd. If it does not subscribe to certain forms of rights issue that may be required, its stake in RHB Bhd would be diluted to a reduced amount.
In addition, there was market talk of the possibility of a merger between RHB Bank and BCB. However, bankers said it is more likely that RHB put its own house in better order first and build more value into the group before a bank merger might be considered.
A capital-restructuring exercise in the RHB group is likely to involve reducing the levels of control. Hence, substantial shareholders may move their shareholdings in RHB Bhd and RHB Bank to RHB Capital, the bankers added.
Thus, EPF might swap its ownership in RHB Bhd for a stake in RHB Capital while Khazanah Nasional Bhd, which owns 30% of RHB Bank, might swap that for a stake in RHB Capital.
The final structure could see EPF, Khazanah and UBG holding their stakes in RHB Capital, which would then own 100% of RHB Bank.