Hong Leong plans large capital call

HLB to raise RM10bil Tier-1 capital while HLFG seeks RM25bil

PETALING JAYA: Hong Leong Bank Bhd (HLB) and its parent company controlled by Tan Sri Quek Leng Chan plan to undertake massive capital-raising exercises, joining other Malaysian banks rushing to boost their financial buffers to comply with regulatory requirement.

Hong Leong Financial Group Bhd (HLFG), which owns 65.7% of HLB, is looking to raise RM25bil via a perpetual notes and commercial papers programme.

The bank itself is planning to raise up to RM10bil by issuing additional Tier-1 capital securities.

This is likely to be the biggest fund-raising exercise to be undertaken by a Malaysian bank.

HLFG said the proceeds from its fund-raising exercise would be put towards on-lend- ing to its subsidiaries, investment into its subsidiaries, working capital, general investment and other corporate purposes. If required part of the proceeds would also be used for the refinancing of its existing financing obligations.

HLFG is raising the funds via the issuance of a multi-currency perpetual notes programme for the issuance of senior notes, Tier-

2 subordinated notes and additional Tier-1 capital securities of up to RM25bil in nominal value, as well as a commercial papers programme of up to RM3bil in nominal value. It said the combined limit of the notes programme and the commercial papers programme will be RM25bil. According to its filing with the Bursa Malaysia, HLFG’s notes programme has been assigned an AA1 rating for its senior notes, AA2 for the subordinated notes and A1 for the capital securities by RAM Rating Services Bhd. The commercial papers programme has been assigned a P1 rating. The group said the subordinated notes were intended to qualify as its Tier-2 capital to comply with the central bank’s capital adequacy framework, while the capital securities were intended to qualify as additional Tier-1 capital. “Approval from Bank Negara for the establishment of the notes programme was obtained on Sept 15,” it said. As at June 30, HLFG’s consolidated Common Equity Tier-1 (CET 1) capital ratio, Tier-1 capital ratio and total capital ratio were at 10.004%, 10.516% and 12.235%, respectively. In a separate filing, HLB announced that it would be raising up to RM10bil via a multi-currency additional Tier-1 capital securities programme. The bank said proceeds for the exercise would be used for on-lending and investment into its subsidiaries, working capital, general banking and other corporate purposes and, if required, the refinancing of any existing financing obligations. It said the programme had been assigned an A1 rating by RAM Ratings. The capital securities, it said, was also to comply with the central bank’s capital adequacy framework issued on on Aug 4, 2017 and to qualify as the consolidated additional Tier-1 capital of HLFG. It received approval from the central bank for the programme on Sept 15, 2017. In another development, RAM Ratings has upgraded the long-term financial institution ratings of HLB, Hong Leong Islamic Bank Bhd and Hong Leong Investment Bank Bhd from AA1 to AAA. Their short-term ratings remain unchanged at P1. At the same time, the ratings house said it had assigned AA1/P1 corporate credit ratings to HLFG. All the long-term ratings have a “stable” outlook. “The upgrading of the ratings is primarily anchored by HLB’s sustained track record of excellent asset quality across credit cycles, robust funding and liquidity position, and respectable domestic retail and SME franchises,” it said in a statement. The rating house also stated that the bank’s capitalisation levels were healthy, with respective fully loaded CET 1 and total capital ratios of 12.7% and 15.8% as at end-June 2017. “HLB remains well poised to weather any potential slippage in its credit profile and additional provisions related to Malaysian Financial Reporting Standards 9,” it said.