Will BIMB be reorganised soon?

  • Business
  • Saturday, 02 Jul 2016

After the listing of RHB Bank, attention is now on whether BIMB will do the same with Bank Islam

With the listing of RHB Bank Bhd, the focus has turned to BIMB Holdings Bhd on whether it will set in motion the long-awaited plan to transfer its listing status to its prized banking arm.

BIMB is an Islamic financial holding company which wholly owns Bank Islam Malaysia Bhd - the country’s oldest and largest standalone Islamic bank with an asset size of RM55.46bil as at March 31. It also owns a 59.9% stake in insurer Syarikat Takaful Malaysia Bhd , while its other core business is BIMB Securities (Holdings) Sdn Bhd, which it 100% owns.

BIMB, in turn is 53.6% controlled by pilgrim fund Lembaga Tabung Haji (LTH).

Industry sources say that while the group has “ready a plan which can be executed anytime, it is also taking a strategic view of things.”

“There are many considerations to weigh ... the exercise may or may not happen in 2016.

It’s the prerogative of LTH and the issue is what do they want out of this exercise,” says a banking source.

It is believed that the bank still holds the dream to move into the big league and grow market share. There is more value creation as even if LTH’s stake does come down, it will have exposure to a larger entity, says the source. This will also be in line with the Government’s initiatives to cement Malaysia as the leading global Islamic finance hub.

However, it will not be able to achieve mega Islamic bank dream this unless it mergers.

It has been reported that there are no immediate plans for the group to embark on any merger and acquisitions, but industry sources reckon that it cannot be ruled out if there is a proposition on the table as banking valuations have come down.

Last year, Bank Islam’s name was floated as a possible suitor of non-bank lender Malaysia Building Society Bhd (MBSB), but nothing materialised.

Subsequently the latter had gone into a proposed merger with Bank Muamalat Malaysia Bhd which was aborted due reportedly to pricing and control issues.

The idea of Bank Islam assuming its parent listing status was bandied about three years ago when BIMB bought the remaining 49% stake in the lender that it did not own. Its management was then reported to have said it planned to embark on this in about one year or in the mid-term.

Like in RHB, a streamlining of the group will make its corporate structure more efficient, resolving BIMB’s double leverage ratio that stood at 12.5% as at end March.

It will give the bank flexibility to raise capital for expansion and place it in a better position for branding.

RHB Bank was listed on Tuesday taking over the listing status of RHB Capital Bhd following an internal reorganisation.

According to industry sources one factor being weighed in the corporate streamlining is the representation of Takaful Malaysia.

There are two possibilities. One is placing the insurer under Bank Islam, while the other is de-coupling it from the structure.

However, without the takaful business, this would make the new listed entity of Bank Islam less attractive.

This is because the former has seen faster earnings growth than the bank over the past five years.

Maybank IB Research notes that Takaful Malaysia’s contribution to earnings has risen from 17% in financial year (FY) 2011 to 23% in FY2015.

The bulk of BIMB’s earnings come from Bank Islam at 77% in FY2015, while that from the brokerage unit is very minute.

“BIMB’s appeal, at this stage, is therefore skewed towards its takaful business and less so towards the Islamic bank.

“Annexing STMB as such may not enhance the appeal of a standalone Bank Islam unit,” the research firm said in its report recently.

Under a scenario where both bank and the insurance company are separate entities, dividend payments to shareholders could potentially be enhanced.

Bank Islam and Takaful Malaysia have a stipulated dividend payout policy of 50% of net profits to BIMB, although STMB’s payout ratio was just 38% in FY15, notes Maybank IB Research.

“We estimate a potential dividend yield of about 4% from Bank Islam if it maintains its stipulated payout ratio of 50%, against the current dividend yield of about 3% for BIMB, says the research house.

Elsewhere, a listing of the Islamic bank would allow investors to evaluate it alongside other listed conventional bank peers.

As for Takaful Malaysia, it would enhance liquidity and visibility given that the stock is relatively unfamiliar to investors.

Maybank IB Research says a possible internal reorganisation could see a 1-for-4 rights issue to raise about RM1.2bil to repay debt at the holding company level and to redeem outstanding warrants, followed by a distribution of Bank Islam and Takaful Malaysia shares back to existing (BIMB) shareholders if the two entities are separated.

BIMB had issued a 10-year sukuk that has an outstanding value of RM1.8bil.

This debt was incurred in December 2013 when it bought the 49% stake in the bank from Dubai Financial Group and LTH for RM2.86bil. That acquisition was also funded through a rights-cum-warrants issue, for which there are currently 426.7mil warrants outstanding, notes the research house.

The warrants are currently trading at a 24% premium to the mother share and if a reorganisation is to be done soon, it is unlikely that the warrants would be exercised.

As to what the value of Bank Islam could be when it is listed, the research firm says based on a prospective FY16 return on equity of 11.8% for the bank, it attaches a potential price-to-book (PBV) of 1.3x, which values the bank at RM2.35 per share. And assuming a higher PBV of 1.4x, Bank Islam would be valued at RM2.53 a share.

BIMB shares closed at RM3.96, giving it a market cap of RM6.29bil.

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Business , BIMB Holdings , Bank Islam , banking


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