AMMB Holdings Bhd has received brickbats from the stock market circle for its proposed private placement exercise that entails the issuance of 300 million new shares to raise RM810 mil at an assumed issue price of RM2.70.
The Minority Shareholders Watch Group CEO Devanesan Evanson described the placement exercise as short-changing the minority shareholders from two perspectives.
“Firstly, there is the dilution effect on their shareholding,” he told FocusM.
“Secondly, a rights issue would have enabled the minority shareholders to enjoy the upside especially since AMMB’s illustrative example states that the placement shares are being issued at a discount of 9.77% to the average share price.”
(For illustrative purposes, AMMB said the issue price of the placement shares is assumed at RM2.70 apiece which represents a discount of 9.77% to the five-day volume weighted average market price of its shares at RM2.9922 up to March 30.)
And even if minority shareholders do not wish to take up their entitlement under the rights issue, they can at least sell the ‘rights’ (to take up the rights shares) when these ‘rights’ are traded in the stock market.
While it is true that a placement raise funds expeditiously and is less costly compared to a rights issue, Devanesan said there should be no hurry to raise these funds as AmBank (AMMB’s banking arm) has stressed that it remains resilient with capital levels within the internal thresholds after taking into account the effects of the 1Malaysia Development Bhd (1MDB) settlement.
“Furthermore, AMMB should be able to expedite the rights issue process given that it is also in the business of investment banking and being a regulated entity, regulatory approvals should also be easier,” he opined.
“Also, traditionally, rights issues by banks have been well received due the highly regulated nature of banks; the potential for upside far outweighs the risk of the downside.”
Devanesan’s view is being upheld by stock market analysts with Kenanga Research downgraded AMMB to “underperform” from “market perform” with a lower target price of RM2.40 (from RM3.05 previously).
“Our lower target price is the result of the share base dilution arising from the proposed placement and cuts to our FY2022E book value (BV) from the announced impairments,” justified analyst Clement Chua in a company update.
“Overall, we anticipate a knee-jerk share price reaction from this announcement.”
Meanwhile, CGS-CIMB Research retained its “reduce” rating on AMMB with a target price of RM2.67 (unchanged) premised on the potential de-rating catalyst of:
- The provision of RM2.83 bil for the 1MDB settlement which could cause AMMB to record a net loss of RM1.77 bil in FY3/2021F and not pay any dividends, and
- The dilution of its FY2022-2023F earnings per share (EPS) from the proposed private placement.
“We retain our projected FY2021-2023F EPS forecasts and dividend discount model (DDM-based target price of RM2.67,” wrote analyst Winson Ng in a company update. “We prefer Public Bank Bhd for exposure to the banking sector.”
At 10.23am, AMMB was 3 sen or 1% at RM2.97 with 2.55 million shares traded, thus valuing the company at RM8,95 bil. – April 2, 2021
Photo credit: Nur Ismail Photography