INVESTORS who had taken up Public Bank Bhd’s rights issue in August are still sitting on handsome gains as the stock has been holding up well despite the recent selldown on the local bourse. Public Bank’s shares closed at RM17.58 last Tuesday, 27.4% higher than the rights issue price.

In a move to beef up its capital, Public Bank, the country’s third largest banking group by assets, raised RM4.83 billion in May through the issuance of 350.21 million rights shares on the basis of one right share for every 10 existing shares held. The rights shares were listed on Aug 8.

The rights issue price of RM13.80 each represented a 33% discount to the theoretical ex-rights price of RM20.64 then. The issue was oversubscribed by 30.53%, with total valid acceptances and excess applications received at 457.15 million rights shares.

Public Investment Bank Bhd was the principal adviser, lead arranger and joint global coordinator for the exercise. RHB Investment Bank Bhd and UBS Securities Malaysia Sdn Bhd were the joint lead underwriters and joint global coordinators.

According to Public Bank’s circular to shareholders in regard to the rights issue, the fundraising exercise was a part of management’s strategy to strengthen its capital position to support the group’s business growth.

“It will also facilitate the building up of an adequate level of capital buffer in preparation for the forthcoming regulatory capital requirements. The rights issue will provide the entitled shareholders with an opportunity to increase their equity participation in the company,” states the bank.

 A large chunk of the proceeds from the exercise will be used for financing and investing activities, which are in the ordinary course of the banking operations, as well as for defraying operating expenses, the bank adds.

AmResearch in an Oct 24 note says with the completion of the rights issue, Public Bank’s Common Equity Tier 1 rose to 10.4% as at Sept 30, 2014, compared with 8.9% before the exercise.

Public Bank posted a healthy growth of 7.43% in net profit to RM3.26 billion for the nine months ended Sept 30, 2014 (9MFY2014). Its annualised domestic loan growth of 10% year on year held up above the industry’s 8.6% y-o-y growth as at end-August.

According to Kenanga Research, Public Bank will go from strength to strength, judging from the good loan growth momentum seen up to 9MFY2014. It adds that Public Bank’s FY2014 loan growth will likely meet management’s guidance of between 10% and 11%.

“Expect, also, for some attention to be directed towards growing non-interest income and adding higher yielding assets to the group’s portfolio, such as selective corporate loans, as further compression is expected in net interest margins,” the research house states in a report last October.

Besides growing steadily in Malaysia, Public Bank is also expanding its regional footprint. In July, it entered into a conditional agreement with its joint-venture partner to acquire the remaining 50% stake in VID Public Bank (VPB) not held by the group for a cash consideration of US$76.6 million. Upon completion of the exercise, VPB will become a wholly-owned subsidiary of the group.

More recently in November, the group signed a memorandum of understanding with PT Bank Central Asia Tbk, the third largest banking group in Indonesia, to build a deeper business relationship, particularly in cross-border banking transactions and services.

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

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.