BNM’s restriction on Aabar possibly due to earlier conditions

PETALING JAYA: The restriction of Aabar Investment's voting rights and entitlement to RHB Capital Bhd's rights issue to no more than 15% by the central bank could be due to the previous cap on corporate shareholding in banks under BAFIA, said Maybank IB Research.
Last week, Bank Negara Malaysia (BNM) ordered RHB Capital to issue not more than 15% of its proposed RM2.5 billion rights issue to Aabar. It also prohibited Aabar from exercising its voting rights in respect of the shares held in RHB Capital in excess of 15%.
"One should not read too deeply into this development we feel, because the wording of the announcement suggests that this was already a precondition in the original agreement with Aabar," it said in its report last Friday.
"Investors will recall that Aabar acquired its original 24.9% stake in RHB Capital from its sister company Abu Dhabi Commercial Bank (ADCB) back in June 2011 for RM10.80 per share.
"Unlike ADCB which is a bank, Aabar is a company and back then, BAFIA restricted corporate shareholding in banks to no more than 20% (the current Financial Services Act, which superseded BAFIA in June 2013, is silent on this).
"As such, it is our assumption that it may have been a prerequisite for Aabar to have pared down its shareholding within a specific time frame, which could have been five years, since Aabar has just entered into its fifth year as a shareholder of RHB Capital," it said.
The shareholding condition imposed by BNM on Aabar is in respect to the initial approval granted by the Finance Minister for Aabar to acquire 24.9% stake in RHB Capital.
To recap, RHB Capital is proposing a 1-for-5 rights issue at RM4.82 per share. Assuming Aabar takes up 15% of its entitlement to the rights issue, its stake in RHB would slip to 20.07% from 21.09% currently.
RHB Capital's current share price translates to an ex-rights price of RM6.12 versus Aabar's entry cost of RM10.80 per share.
"The Employees Provident Fund (EPF) and OSK Holdings Bhd (substantial shareholders of RHB Capital) are committed to subscribing fully to their respective stakes of 41.58% and 9.97%, with the balance underwritten by a consortium of investment banks which includes RHB IB, Affin Hwang IB, CIMB IB, Credit Suisse Securities, Maybank IB and Public IB.
"Moreover, it is EPF's intention to apply for excess rights of up to 2%, thus potentially mopping up part of the excess rights from Aabar's restricted stake."
Maybank IB Research maintained its "hold" call on RHB Capital with an unchanged target price of RM6.80.
"To reiterate, the positives of RHB Capital's rights issue and internal restructuring exercise include an enhanced group CET1 ratio of 11%, reduced goodwill from RM5.2 billion to RM3 billion, improved return on equities (ROEs) and the elimination of the group's double leverage.
"We estimate a 32% dilution to the group's FY16 earnings per share from the rights issue, but an enhancement to our FY16 ROE to 9.5% from 8.2%," it said.