Bank Muamalat listing? IPO a challenge due to volatile market


  • Business
  • Thursday, 11 Feb 2016

f it could not find a suitable buyer, there is a possibility that Bank Muamalat will go for listing,

PETALING JAYA: A potential listing of Bank Muamalat Malaysia Bhd could be an option should its major shareholder DRB-Hicom Bhd fail to find a suitable suitor to buy up a stake in the bank.

“The requirement to pare down its (DRB-Hicom’s) stake in Bank Mualamat is to comply with Bank Negara’s requirements from current 70% to 40%, which has been delayed for a few years.

“If it could not find a suitable buyer, there is a possibility that Bank Muamalat will go for listing,” Public Invest said in a recent report.

Last week, the proposed merger between Malaysia Building Society Bhd (MBSB) and Bank Muamalat was called off as the parties involved were not been able to reach an agreement on the terms and conditions. Disagreement over valuations and control were believed to be factors that led to the breakdown of negotiations that began last October.

“We believe Bank Mualamat is not in an entirely weak position financially as its capital ratios are among the highest industry-wide, conventional and Islamic.

“Asset quality is fair, while a larger portion of its loans portfolio being on variable rates gives it greater pricing flexibility and potential earnings upside,” said the research firm in the report initiated after a meeting with a senior personnel of the diversified group and its investor relations team.

However, industry players reckoned that while DRB-Hicom appeared to be running out of options, a listing exercise in a volatile equity markets would also make it challenging to price public offerings.

Banking stocks on local bourse are trading at a price-to-book ratio between 0.5 times to 1.5 times, with the exception of Public Bank Bhd, which trades at a ratio of 2.3 times.

A business weekly previously reported that DRB-Hicom had until end of this month to pare down its shareholding in Bank Muamalat to at least 40%, after several deadline extensions were given.

With tighter regulatory requirements needing banks to boost capital levels, there is also the issue of whether DRB-Hicom as the financial holding company is able to support future capital injections into Bank Muamalat.

Bank Muamalat is the country’s second standalone Islamic bank, after Bank Islam Malaysia Bhd. It has 60 branches and while total assets stood at RM22bil.

The diversified group had bought its 70% stake in Bank Muamalat from Bukhary Capital Sdn Bhd back in 2008 in a RM1.069bil deal. The central bank had allowed the deal, on condition that it would eventually pare down the stake. The bank was priced at about 1.2 times book value when DRB-Hicom bought the controlling stake.

The remainder 30% stake in the bank is held by sovereign wealth fund Khazanah Nasional Bhd.

With a listing, bankers said that a deal could be crafted for DRB-Hicom to keep a controlling interest in the bank.

Industry players said that the dilution of its stake in Bank Muamalat had been a prolonged process for DRB-Hicom because it was looking at an exercise that could add value and increase the bank’s penetration into the Islamic financial business. It is also understood that the group wanted to maintain control of the bank and its price expectations deemed on the high side.

DRB-Hicom’s previous attempts to sell down its stake to several financial institutions, namely Affin Holdings Bhd, Bank Islam Malaysia Bhd and Bahrain-based Islamic lender Al Baraka, were not successful.

The last Islamic banking transaction was done in 2013 at 1.8 times book when BIMB paid RM2.96bil to take full control of Bank Islam.

On the operation-side, industry players noted that Bank Muamalat has been working quietly to clean up its books over the last few years.

Bank Muamalat’s accounted for around 7% of DRB-Hicom’s revenue of RM13.687bil for the financial year ended March 31, 2015 (FY15) and chalked up a return of equity of 5%. However, its cost-to-income ratio (CIR) is still high at about 70% currently.

For the half-year of FY16 that ended on Sept 30, Bank Muamalat made a profit before zakat and taxation of RM92.3mil, up by about one-third from the same period before.

Home financing makes up the bulk of the group’s financing portfolio.

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