KUALA LUMPUR: The sharp fall in RHB Capital Bhd’s (RHBCap) share price and the current weak market sentiment towards banking stocks might make its shareholders think twice about whether to subscribe to the renounceable rights issue or not.

Now, an additional consideration is whether to subscribe to more than their entitlements since Aabar Investment PJS is not allowed to subscribe to all its entitlements. 

However, analysts and fund managers contacted by The Edge Financial Daily are of the view that the one-for-five rights issue, which is priced at RM4.38, remains as an attractive cheap entry to RHBCap.

M&A Securities Sdn Bhd research head Rosnani Rasul said the entitled shareholders should leverage on the opportunity that offers RHBCap shares at a steep discount. Based on yesterday’s closing price of RM6.26, RHBCap’s rights issue is at a discount of 23.8%.   

“The entitled shareholders should take advantage of the low hanging fruit [the discount in the rights issue price]. I would liken the situation to Christmas coming in early for RHBCap shareholders,” said Rosnani.

According to Bloomberg, Macquarie has pegged the lowest fair value of RM5.50 for RHBCap, meanwhile CIMB Research has the highest fair value at RM9.90. 

A local fund manager, who declined to be named, opined that the entitled shareholders should take up the shares after weighing in on market risks.

“The most obvious question to ask is whether RHBCap’s share price would dip below RM4.82 — the subscription price. However, given RHBCap’s current share price and intact fundamentals, this may seem unlikely,” he said, but cautioned that given the current volatile market condition, market risks are always there.

MIDF Research analyst Kelvin Ong said the rights issue price of RM4.82, which represents a discount of about 20.3% to the theoretical ex-rights price of RM6.05 per share, would appeal to entitled shareholders with a long-term view.

“With regard to whether the price is attractive, I would say that boils down to the type of investor you are. In the case of RHBCap’s share price, it will definitely be an apt discount to the type of investor who has a long-term view, and who has weighed in on the fundamentals that the group has, and the future prospects that it can offer,” he told The Edge Financial Daily.

The rights issue is expected to raise gross proceeds of RM2.5 billion through the issue of 517.7 million new RHBCap shares. Trading of the right to subscribe to the cash call will start on Oct 2. The cash call will close on Oct 19.

Last week, Bank Negara Malaysia issued a letter to RHBCap saying that its substantial shareholder Aabar is only permitted to subscribe to 15% of the banking group’s rights issue, instead of 21.9% as per its shareholding. The restriction came as a surprise to many. 

Based on Aabar’s shareholding of 545.78 million shares, the Abu-Dhabi investment fund could only subscribe to 77.6 million shares under RHBCap’s one–for-five renounceable rights issue, instead of 109.1 million shares for its entire shareholding of 21.9%.

Theoretically, that would mean that Aabar’s remaining 6.09% entitlement under the rights issue would be up for grabs by the other entitled shareholders seeing that the Middle Eastern fund has 

been imposed a 15% cap.

In its circular to shareholders dated Aug 5, RHBCap said the rights shares which are not taken up shall be made available for excess applications by other entitled shareholders.

RHB Investment Bank Bhd, Affin Hwang Investment Bank Bhd, CIMB Investment Bank Bhd, Credit Suisse Securities (M) Sdn Bhd, Maybank Investment Bank Bhd and Public Investment Bank Bhd will be underwriting 250.84 million or 48.45% of the rights shares.

RHBCap’s other major shareholders, the Employees Provident Fund and OSK Holdings Bhd, have committed to subscribing fully to the remaining 266.86 million shares, representing a 51.55% stake based on their entitlements of 41.58% and 9.97% respectively.

This article first appeared in The Edge Financial Daily, on September 22, 2015.