KUALA LUMPUR: Hong Leong Bank Bhd (HLB) has proposed to undertake a renounceable rights issue to raise up to RM3 billion for the group’s working capital and banking purposes.
Meanwhile, its parent company, Hong Leong Financial Group Bhd (HLFG), which owns 64.23% of HLB, is also making a cash call to raise money to subscribe to its banking arm’s proposed rights issue.
In a filing with Bursa Malaysia, HLFG said based on its direct shareholding of 64.23% in HLB and the intended gross proceeds of up to RM3 billion to be raised from its consumer banking arm’s rights issue, the capital outlay required by HLFG to fully subscribe to its entitlements is expected to be about RM1.9 billion.
On HLB’s proposed rights issue, the bank said the entitlement basis is assumed to be nine rights shares for every 55 HLB shares held by shareholders.
The bank also said the issue price of the shares had not been fixed at this juncture to provide flexibility to HLB’s board of directors to determine the price at a later date.
However, the issue price is assumed to be RM10.19, which represents a discount of RM2.84 or 21.79% to the theoretical ex-rights price (TERP) of RM13.03, calculated based on the five-day volume weighted average market price (VWAMP) of HLB shares up to and including the latest practicable date (LPD) of RM13.50.
The exercise would enlarge HLB’s issued and paid-up share capital to RM2.09 billion from RM1.88 billion.
HLB said it intends to use RM2.993 billion of the raised proceeds within 12 months for working capital and general banking purposes, while the remaining RM7 million will be used for the costs encumbered from the renounceable rights issue.
HLB also said the proposed rights issue is being undertaken as part of HLB’s capital management strategy to further strengthen its capital position to support the continuous business growth of the group.
The bank said after the consideration of other options, it was of the opinion that a renounceable rights issue is the most appropriate avenue for fundraising “at this juncture”.
“The proposed rights issue will also facilitate the build-up of an adequate level of capital buffer in preparation for the forthcoming regulatory capital requirements,” HLB said.
HLB said the effect of the renounceable rights issue on the bank’s earnings for the financial year ending June 30, 2016 would depend on the number of rights shares to be issued and the level of returns generated from proceeds raised from the exercise.
However, the bank said assuming that the consolidated earnings of HLB remains unchanged, the consolidated earnings per share of HLB would be diluted as a result of the increase in the number of HLB shares in issue, following the exercise.
In a separate filing, HLFG said the entitlement basis is assumed to be three rights shares for every 34 HLFG shares held by shareholders.
It also said the issue price is assumed to be RM11.84, which represents a discount of RM3.28 or 21.69% to the TERP of RM15.12, based on the five-day VWAMP of HLFG shares up to and including the LPD of RM15.41.
The proposed rights issue will enlarge HLFG’s issued and paid-up share capital to 1.15 billion shares from 1.05 billion shares.
HLB (fundamental: 2.8; valuation: 2.2) shares closed 38 sen or 2.88% lower at RM12.88, with a market capitalisation of RM23.03 billion. HLFG’s (fundamental: 2; valuation: 2.55) share price dropped 62 sen or 4.13% to RM14.38, with a market cap of RM15.16 billion.
The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.
This article first appeared in digitaledge Daily, on August 13, 2015.