‘NOT HARD FOR AMBANK TO RAISE FUNDS’
Private placement, goodwill impairment not expected to affect group’s credit rating
AMMB Holdings Bhd’s (AmBank Group) estimated RM810 million private placement may be “highly earnings dilutive” but some analysts are “neutral to slightly positive” on the fundraising to partially replace the loss of capital from its RM2.83 billion 1Malaysia Development Bhd (1MDB) settlement.
They said AmBank Group will not find it difficult to raise funds to plug the hole. They also said the placement and the group’s RM2.09 billion impairment of goodwill for the fourth quarter ended March 31, 2021 will not affect its credit rating.
The one-off goodwill impairment mainly comprises consolidation of previous acquisitions and corporate exercises of its conventional businesses.
MIDF Research is not entirely surprised by the fundraising move. Research head Imran Yusof said the management had hinted at plans to replace the capital loss.
“It is too early to tell but we believe the AmBank Group will not have difficulties raising the funds required given that operationally, it has been performing well,” he told the New Straits Times.
Imran said the private placement plan will dilute earnings per share (EPS) and book value per share but this will be moderated by the reassessment of the group’s goodwill.
“The other positive factor is the increase of capital ratios. Hence, we are ‘neutral to slightly positive’ on this exercise,” he added.
CGS-CIMB Research estimated the private placement would dilute AmBank Group’s EPS by four per cent for the year ending March 31, 2022 and 8.3 per cent for financial year 2023, based on the assumed issue price of RM2.70.
“The dilution is assessed by us to be high because AmBank Group is trading at a low endfinancial year 2021 price-to-book value of 0.55 times, and the yield for proceeds from the private placement is low (assumed by us to be 1.94 per cent) amid the low interest rate regime.”
RAM Rating Services Bhd (RAM Ratings) said the planned goodwill writedown and private placement will not affect AmBank Group’s ratings in the immediate term.
“The goodwill impairment does not affect the group’s capital ratios and its liquidity position.
While credit positive, the planned private placement is not sufficient to restore the group’s loss absorption buffer to the pre1MDB settlement level.”
RAM Ratings had in early March downgraded AmBank’s ratings to “AA3/stable/P1” from “AA2/stable/P1”, reflecting the adverse financial impact of the RM2.83 billion global settlement with the government.
The firm said the goodwill impairment will catapult AmBank to an even larger loss but its capitalisation, a key rating consideration, will not be affected as goodwill is excluded from the calculation of regulatory capital ratios.
“Given the non-cash nature of this exercise, AmBank Group’s liquidity position will also remain intact.”
RAM Ratings said the private placement will strengthen the group’s loss absorption buffer.
Hong Leong Investment Bank Bhd analyst Chan Jit Hoong agreed that AmBank Group will not face any issue in raising the capital given ample liquidity in the market and that the new placement shares will be issued at a discount.
The placement is expected to be completed in the second quarter of the year.
AmBank shares, meanwhile, have been experiencing a rollercoaster ride this year.
The stock eased 0.6 per cent to RM2.98 on Friday, giving it a market capitalisation of RM8.96 billion. Year to date (YTD), the stock hit its lowest of RM2.80 on March 3 after Australia and New Zealand Banking Group reportedly said it would reduce its investment in AmBank following the 1MDB settlement.
On Jan 4, it closed at RM3.49, its highest this year, with the average price at RM3.17 YTD.