PETALING JAYA: AMMB Holdings Bhd’s proposed private placement exercise is expected to partially replenish the group’s common equity tier-1 (CET 1) ratio to 11.7%, according to S&P Global Ratings (S&P).
In a statement yesterday, the credit rating agency said proceeds from the share placement would flow into the group’s operating subsidiaries, including AmBank (M) Bhd (BBB+/Negative/A-2), the main banking subsidiary of AMMB.
“This will augment the bank’s capital buffers and provide more room for downside shocks.
“The restoration of capital to levels before AMMB’s settlement with the Malaysian government for its involvement in 1Malaysia Development Bhd (1MDB) will be gradual and will likely involve a combination of retained earnings and divestitures of non-core assets.”
AMMB planned to raise over RM800mil via a private placement exercise to strengthen its capitalisation levels that were affected following its RM2.83bil settlement with the Finance Ministry for the group’s involvement in the 1MDB scandal.
Up to 300 million new shares are expected to be placed out, representing 9.97% of the group’s existing ordinary share capital, excluding treasury shares.
Based on its estimates, S&P said AMMB’s RMR2.83bil settlement will result in a net loss in the fiscal year ended March 31,2021, with a projected reduction in the group’s CET 1 ratio to 11% from 13.5%.
“AMMB is also assessing the carrying value of goodwill on its business lines to reflect the impact of Covid-19 and the 1MDB settlement as part of its annual review exercise. It will likely result in a write-down of goodwill, the amount of which will be subject to audit review.
“This will not affect our capital assessment because goodwill is already excluded from our capital calculations, ” it said.
In early March, RAM Rating downgraded AMMB’s ratings to AA3/Stable/P1 from AA2/Stable/P1 to reflect the adverse financial impact of the RM2.83bil global settlement with the government, in relation to the group’s historical dealings with 1MDB.
AMMB’s goodwill arose from legacy corporate exercises and acquisitions.
Still subject to audit review, the goodwill assessment is focused on certain lines of business, namely its conventional commercial and investment banking operations which have an aggregate goodwill of RM1.9bil.
With the group incurring the RM2.83bil provision in the fourth quarter of financial year ended March 31,2021, the one-off goodwill impairment charge will catapult the group into an even larger loss.
Nonetheless, its capitalisation, which is a key rating consideration, would not be affected as goodwill is excluded from the calculation of regulatory capital ratios, RAM Rating said.
Given the non-cash nature of this exercise, AMMB’s liquidity position would also remain intact.