CIMB Group Holdings Bhd raised RM3.55 billion from a share placement exercise in January — the second largest primary follow-on offering in Southeast Asia since October 2012. This was also the first equity fundraising exercise undertaken by the group since the initial public offering of CIMB Investment Bhd in 2003.

In the placement, the banking group issued 500 million new shares, equivalent to 6.5% of its enlarged share capital following an accelerated book-building private placement exercise. This raised CIMB Group’s share base to 8.23 billion as at end-December 2013 and improved its Core Equity Tier-1 (CET1) ratio to 9.7% from 8.2% as at September 2013.

The placement shares were issued at RM7.10 apiece, a 2.7% discount to the Jan 10, 2014, close of RM7.30 and a 2.2% discount to the Jan 10, 2014, volume weighted average price of RM7.2591. The shares were listed on Jan 23, with the price representing a 4.4% premium to the closing price of RM6.80 on the same day.

CIMB Group’s shares then continued a mild uptick to RM7.50 at the highest on April 7, giving investors a 5.6% gain. But since end-August, due to a number of factors, including the general dampening in the local bourse, the stock has declined steadily to close at a 52-week low of RM5.37 on Dec 16, an almost 30% year-to-date loss.

The placement shares represented 6.5% of CIMB Group’s existing share capital and increased its free float from 53% to 56%. The deal was advised by CIMB Investment Bank and the joint book runners were Bank of America Merrill Lynch, Credit Suisse and CIMB Investment.

Datuk Seri Nazir Razak, who was the then CIMB Group group chief executive, said in a January press statement that while the group has always sought to operate at optimal capital levels, the sharp depreciation of the rupiah over 2013 had set back its capital accumulation plan and that management has acted decisively to reposition its capital for growth.

Nazir had stepped down in September to take on the chairman’s post. Tengku Zafrul Aziz is now the acting CEO.

“The private placement will strengthen CIMB Group’s capital position and provide it with a capital buffer for growth in view of more stringent requirements under the Basel III framework and by Bank Negara Malaysia,” CIMB Group said in the listing announcement.

The bank’s Indonesian unit, CIMB Niaga, had in fact increased its net profit by 3.6% year on year for the nine months ended Sept 30, 2013, to IDR3,212 billion. However, contribution to the group in the same period fell 4% due to a 12% depreciation in the rupiah.

The private placement in January also brought down CIMB Group’s gearing levels to 35% over total equity compared with 45% previously.

The placement was oversubscribed, enabling the group to upsize the deal by 25% to 500 million shares. The new equity was placed to foreign  and domestic investors who showed particularly strong demand. There was also active participation from long-only funds, insurance companies and hedge funds.  

Existing shareholders also provided strong support, making up more than three quarters of total demand, despite CIMB Group’s largest shareholder — Khazanah Nasional Bhd — not being able to participate due to regulatory restrictions.

The placement narrowed Khazanah’s stake at the time to 28.3% from 30.1% previously. The Employees Provident Fund saw its stake reduced to 15% from 15.9%, while CIMB Group’s third largest shareholder was left with 9.1%, from 9.8%.

This article first appeared in The Edge Malaysia Weekly, on 22 - 28 December 2014.

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