Public Bank to raise RM5bil, first rights issue after 10 years

PETALING JAYA: Joining the band of banks that are beefing up their capital base for the Basel III requirement, Public Bank Bhd has proposed a renounceable rights issue to raise up to RM5bil.

This is the first cash call that Public Bank, which is the third largest financial institution in the country, is making in 10 years and the amount is the biggest among local financial institutions.
In January this year, CIMB Group raised RM3.55bil through a private placement of 500 million new shares at RM7.10 each.

It’s easy to fathom why Public Bank has embarked on a capital-raising exercise, Its Tier-1 capital is one the lowest among its peers and it contributes to meeting the capital requirements of Basel III.

As of the first quarter to March 31, 2014, Public Bank had a Tier-1 Capital of 10.1% versus an industry average of 12.8%. The Tier-1 capital is measurement of a bank’s core equity capital compared with its total risk-weighted assets. This is the measure of a bank’s financial strength.

It also has a common equity Tier 1 (CET-1) ratio of 8.5% versus an average of 12.8%.
Public Bank shares closed unchanged at RM20.16 on volume of 3.32 million shares.
In recent weeks, the stock had risen more than RM1 from the RM19.16 level to hit a high of RM20.80 on April 4, following an agreement by shareholders to merge its local and foreign shares. This exercise was completed on April 16.

In a filing with Bursa Malaysia, Public Bank said that the proposed rights issue was part of the company’s capital management strategy to further strengthen its capital position. “It will also facilitate the building up of an adequate level of capital buffer in preparation for the forthcoming regulatory capital requirements,” it said.

A banking analyst added that while Public Bank was probably building up its capital base for the Basel III requirement, it was more likely building up its war chest before a rate hike took place.
“I don’t think Public Bank wants to be in a position where it needs to compete with other banks to raise funds. So why not do it now?” explained the analyst.

Public Bank is in fact the third bank to raise funds after Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd.

Maybank raised RM3.66bil back in 2012 after it sold 412 million new shares at RM8.88 each to local and foreign institutions via a private-placement exercise.

In January, CIMB Group raised RM3.55bil via the issuance of 500 million new shares at RM7.10 each, also through a private-placement exercise.

On the rights issue, the issue price of Public Bank’s rights shares will be at a discount of at least 20% but not more than 35% from the theoretical ex-rights price of the five-day volume weight average price of Public Bank shares preceding the price fixing date.

Public Bank currently has a paid-up share capital of 3.53 billion shares. The rights issue will raise an additional 350.21 million shares, hence enlarging its paid-up share capital to 3.88 billion shares.
Public Bank said that the actual capital outlay and issue price of the rights shares would be determined later.

Public Bank’s founder and chairman, Tan Sri Teh Hong Piow, who owns 24.08% in Public Bank, has undertaken to subscribe his entitlement in full.

Together with Tan Sri Tay Ah Lek, the duo have been running the bank since its inception. In recent months, there have been speculation that Quah Poh Keat, who is now the deputy chief executive officer II, will lead the bank.

From the gross proceeds, some RM4.97bil will be utilised over the next 12 months for working capital and general banking purposes. The remainder will be used as defrayment of cost for the rights exercise.

Meanwhile, Public Bank yesterday announced the appointment of Cheah Kim Leng as an independent director of the board. Cheah served Bank Negara for 32 years in all aspects of banking regulation from formulation of policies to guidelines governing banks.