KUALA LUMPUR (Apr 16): Moody’s Investors Service said RHB Bank Bhd’s new capital and reorganisation plan is “credit positive” to the bank as it will enhance its capital buffer and improve its ability to retain capital through the repayment of debt at the holding company level.

RHB Capital Bhd proposed on Monday an internal reorganisation that will see RHB Bank take over its parent’s listing status.

The group has also proposed a rights issue of new shares to raise up to RM2.5 billion for its working capital and to meet the requirements of Basel III.

In an article from Moody’s Credit Outlook, Apr 16 issue, the credit rating agency said RHB Bank (A3/A3 stable, ba1 review for upgrade) will benefit from the proposed reorganisation.

“RHB Bank will acquire from RHBCap (fundamental: 1.5; valuation: 2.1) the net assets of RHB Investment Bank and RHB Insurance Bhd at book value or less,” it said.

Furthermore, Moody’s also pointed out that RHB Bank’s pro forma common equity Tier 1 (CET1) ratio will improve to around 11.1% after the rights issue and acquisitions, from 10.6% at the end of 2014.

In the article, Moody’s said the second benefit to RHB Bank will be its improved ability to retain capital because all external debt at the holding company level will be repaid.

“At the end of 2014, RHBCap operated with a high double leverage ratio of 137% and relied heavily on dividends from RHB Bank.

“The repayment of borrowings and the purchase of assets by RHB Bank will completely remove double leverage at the holding company level and eliminate the risk that RHB Bank will have to upstream more dividends to fund the holding company’s debt and dividend payments. Following the reorganisation, RHBCap will be liquidated,” it added.

The plan is expected to be finalised in the fourth quarter of 2015, and requires approvals from shareholders and regulators.

“We think that the plan has a high chance of going ahead because the rights issue requires shareholder approval of at least 50% plus one share, which RHBCap will likely obtain from its 41.49% shareholder employees provident fund (EPF) and other shareholders,” Moody’s added.

(Note: 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.)