Best Fundraising (Non-IPO): Hong Leong bags largest fundraising haul


  • Over the past year, the bank’s shares have gained 0.6% to close at RM13.34 last Thursday

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This article first appeared in The Edge Malaysia Weekly, on December 19-25, 2016.

 

HONG Leong Bank Bhd’s (HLB) rights issue, which raised gross proceeds of RM2.99 billion, was the largest such exercise undertaken by a financial institution in 2015.

The rights issue was announced in August but concluded in December the same year, enabling it to qualify and fight for honours this year.

HLB, the country’s fourth largest banking group by assets, raised RM2.99 billion on the basis of four rights shares for every 25 existing shares held, at an issue price of RM10.40 per rights share, to enable it to raise funds to achieve an adequate level of capital buffer, in accordance with the Capital Adequacy Framework (Capital Components) issued by Bank Negara Malaysia.

The proceeds of the rights issue were to be used mainly to shore up the bank’s capital position to comply with the Basel III requirements. Under Basel III, banks are required to hold top-quality capital totalling 7% of their risk-bearing assets, up from 2% in Basel II.

Of the 7% requirement, 4.5% comprises core Tier-1 capital, which includes shares and retained earnings, and an additional 2.5% of capital conservation buffer. In a nutshell, Basel III requires banks to have more capital and liquidity than previously required.

Making it attractive to minority shareholders, the issue price of RM10.40 per HLB rights share represented a discount of 22.7% to the theoretical ex-rights price of RM13.45 per share.

Over the past year — HLB’s rights issue was concluded on Dec 28, 2015 — the bank’s shares have gained 2.84% to close at RM13.34 last Thursday, giving it a market capitalisation of RM27.42 billion.

In what is considered a related transaction, Hong Leong Financial Group Bhd (HLFG), which owns 64.37% equity interest in HLB, also undertook a cash call — a rights issue of 94.75 million new shares in HLFG on the basis of nine rights shares for every 100 existing HLFG shares held, at an issue price of RM11.60 per rights share.

The group raised RM1.01 billion, which was utilised for the part subscription of HLFG’s entitlements under the rights issue undertaken by HLB and to defray expenses incurred.

The issue price of RM11.60 per HLFG rights share represented a discount of 20.3% to the theoretical ex-rights price of RM14.55, which enabled minority shareholders to buy more shares in HLFG on the cheap.

Since the conclusion of the deal last year, HLFG’s share price has gained 7.3% to close at RM14.92 last Thursday, for a market capitalisation of RM17.11 billion.

Other than enabling minorities to buy into the two companies on the cheap, the rights issue allowed HLFG to raise capital to partially fund the subscription of its entitlements under the rights issue undertaken by HLB while avoiding a dilution of its equity interest.

The two exercises, which are interlinked, raised in excess of RM4 billion, which was not easy in the uncertain economic climate brought about by low oil prices and the many issues surrounding 1Malaysia Development Bhd.

Hong Leong Investment Bank Bhd, a subsidiary of HLB, acted as principal adviser, lead arranger and joint global coordinator for the exercise by both HLB and HLFG and took on the additional responsibilities of lead underwriter and joint underwriter for HLB.