By Devanesan Evanson
FOLLOWING its April 1 announcement to call for a proposed private placement exercise – which was a surprise for the market, AMMB Holdings Bhd (AMMB) again reached out to the Minority Shareholders Watch Group (MSWG) to address our concerns and queries. MSWG met AMMB at 4.30pm on April 2 – the day after the announcement.
(AMMB had earlier reached out to MSWG to address concerns regarding the RM2.83 bil settlement related to 1Malaysia Development Bhd [1MDB]).
On the same day, along with the announcement on the placement, the banking group also announced that it is undertaking an assessment of goodwill to ascertain the value of impairment that will be reflected in its financial results for the fourth quarter ended March 31.
AMMB also met other shareholder and stakeholder groups to address concerns on the placement exercise and the assessment of goodwill.
Why not a rights issue?
Earlier, on the morning of the announcement (April 1), the Minority Shareholders Watch Group (MSWG) commented that a placement exercise will affect the interest of minority shareholders in terms of shareholding dilution and will deprive minority shareholders from enjoying future upside in the share price, in view that the RM2.70 illustrative placement price was at a discount of 9.77% compared to the five-day volume weighted average price.
It has now been determined that the placement price will be RM2.75 – and the closing price of the share at the time of writing (April 8) was RM3.15.
The market was given to understand that the bank remained resilient and unstressed after accounting for the effects of the RM2.83 bil settlement. Thus, the placement exercise came as a surprise to the market.
AMMB’s justification for the placement
AMMB explained that the implementation of the private placement was to further strengthen AmBank Group’s capital base by accelerating the build-up of its Core Equity Tier 1 capital.
During our meeting with AMMB, AMMB’s management stressed that a rights issue carries substantial downside risks.
Firstly, its two major shareholders would be unable to take up their respective rights allocation due to shareholding caps imposed by the regulators.
It was also highlighted that apart from the two major shareholders, another shareholder holding a substantial block also indicated that they will not be able to participate in the rights issue as they have fully invested.
Secondly, a placement can raise funds expeditiously and is less costly compared to a rights issue,
Thirdly, with the risk of such major undersubscription, the underwriters of the rights issue would have demanded higher fees to compensate for their underwriting risks and this would drive rights issue costs higher.
Fourthly, AMMB will be diligent in the selecting of placees in that they will try to identify placees who will be able to value-add to the banking group.
Fifthly, a placement would bring in the funds sooner than a rights issue. Thus, the timely replenishment of capital may also lead to earlier rating upgrade of AmBank Group’s rating by rating agencies.
(Last month, RAM Rating Services Bhd downgraded the credit ratings of AmBank Group and its subsidiaries to AA3 from AA2, due to the RM2.83 bil global settlement related to 1MDB).
Based on the reasons given in support of a placement in lieu of a rights issue, MSWG can understand the rationale for the placement.
It is unfortunate that this rationale was not available in the announcement made by AMMB through Bursa Malaysia and/or the press release.
It would have pre-empted the question ‘why a placement and not a rights issue’ and AMMB could have avoided the need to reach out to the various shareholder and stakeholder groups individually to explain their rationale for the placement. – April 12, 2021
Devanesan Evanson is the CEO of the Minority Shareholders Watch Group (MSWG).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.