PETALING JAYA: Kenanga Investment Bank Bhd’s (Kenanga IB) proposed RM875.1mil merger with ECM Libra Financial Group Bhd’s investment bank will have no immediate impact on the former’s ratings, according to RAM Ratings.
The ratings agency said in a statement that post-acquisition, Kenanga IB’s overall risk-weighted capital-adequacy ratio was estimated to be lowered to about 24% from 38.6% as at end-March, which was still adequate.
It added that the bank’s cash and short-term funds of RM1.1bil amply covered the cash payment needed for the acquisition.
Kenanga IB’s parent, K&N Kenanga Holdings Bhd, had on June 15 inked a deal with ECM Libra to buy the latter’s investment banking and stockbroking businesses, to be settled with RM659.6mil in cash, RM120mil in new shares and RM95.5mil in redeemable non-convertible unsecured loan stocks.
The acquisition values ECM Libra IB at 1.27 times price-to-book, based on its audited consolidated net assets of RM687.7mil as at Jan 31, representing a premium of RM187.4mil.
“The proposed merger will strengthen Kenanga IB’s stockbroking franchise while broadening its distribution network.
“Based on the industry’s year-to-date statistics, the enlarged entity will become the second-largest stockbroker by trading volume and the third biggest by trading value.
“In particular, Kenanga IB’s niche in the higher-yielding retail stockbroking sphere will be further solidified since ECM Libra IB is also largely retail-oriented,” RAM Ratings said.
It noted, however, that the takeover could present integration risks in terms of aligning the best practices of both firms as well as the retention of human capital and clients.
“For cost efficiency, eliminating resource duplication would likely be another focus point of the bank. We will continue monitoring the pertinent developments relating to this proposed acquisition,” it added.
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