Observers say rights issue proposal closes door on possible merger
NON-BANK financial provider Malaysia Building Society Bhd’s (MBSB) latest proposed rights issue closes the door on the future possibility of a merger, say observers.
The company is raising funds to strengthen its core capital and increase its leverage ratio to at least 12.5%, in compliance with the requirements of Bank Negara, hoping to secure a banking licence in the next two or three years.
While the financial services provider’s largest shareholder, the Employees Provident Fund (EPF) has already committed to spend RM1.3bil to subscribe to the renounceable rights issue, it is learnt that the company’s second largest shareholder will also be subscribing.
According to a source, prominent businessman Tan Sri Chua Ma Yu (pic), who recently acquired a 6.06% stake earlier this month, will also be taking up the rights issue.
MBSB is majority-owned by the EPF with a 65% stake.
“The fact that the two biggest shareholders are prepared to pump in money and take up the rights issue is a good sign for MBSB.
“It is still pushing towards becoming a full-fledged Islamic bank ,” he said.
MBSB has a long-term plan to graduate from a non-bank to an Islamic bank to increase its competitiveness.
With a bank status, MBSB would be able tap into new segments and provide financial services which it cannot offer at the moment.
This includes collecting CASA deposits and offering other interbank instruments.
In a filing with Bursa Malaysia on March 10, MBSB said it planned to raise up to RM2bil via a renounceable two-call rights issue of new shares to meet its capital requirement.
The first call would be payable in cash on application by the entitled shareholders and/or their renouncees who wish to subscribe for the rights shares, while the second call will be capitalised from the company’s share premium and/or retained earnings account.
The company said it would allocate about RM1bil in proceeds to purchase liquefiable assets, RM900mil to expand its financing business, RM86mil as working capital and RM14mil for estimated expenses of the rights issue.
Following the announcement, MIDF Research says they viewed the capital raising exercise positively as it would strengthen the company’s capital ratio after the recent move to increase its provisioning to narrow the gap with banks.
Analysts have noted that it will be difficult for MBSB to obtain a banking licence due the central bank’s stance on wanting more consolidation in the sector.
They say MBSB was under pressure to find a merger partner as it could not rely on shareholder funds for lending activities.
However, the company is pushing ahead in its bid to secure the licence, as seen in the two-year impairment programme it initiated in the last quarter of 2014 to further “close the gap” to become a bank.
The move involves assessing its non-performing loans based on the banking industry standards of three months in arrears.
Since then, it has been making heavy provisions, which has weighed on the bottom line.
The company suffered a net loss of RM15.81mil in the fourth quarter ended Dec 31, 2015, compared with a net profit of RM393.07mil in the previous corresponding period, mainly due to allowances for the higher impairment losses.
Revenue for the quarter under review grew 39% to RM825.69mil from RM594.33mil a year earlier.
For the financial year ended Dec 31, 2015 (FY15), net profit plunged to RM257.59mil from RM1.02bil in the previous corresponding period, while revenue rose to RM3.05bil from RM2.61bil a year earlier.
“The company set aside some RM1.6bil over three years for impairment losses.
“If not for this, the company would have made close to RM1bil in profit,” says an observer.
On Feb 2, MBSB announced that its proposed merger with Bank Muamalat had been aborted.
The merger would have created the biggest standalone Islamic bank with combined assets of RM63.5bil and a deposit base of about RM49bil.
This followed the failure of CIMB Group Holdings Bhd, RHB Capital Bhd and MBSB to form an Islamic mega-bank in January 2015.