Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Malaysia Weekly, on October 12 - 18, 2015.

 

BIMB--Shareholdings_Structure_18_TEM1079_theedgemarketsTHERE is growing speculation that an internal reorganisation is on the cards at BIMB Holdings Bhd to make its corporate structure more efficient.

An Islamic financial holding company, BIMB wholly owns Bank Islam Malaysia Bhd, the country’s largest standalone Islamic bank. It also holds a 60.31% stake in insurer Syarikat Takaful Malaysia Bhd (STMB) and 100% of BIMB Securities (Holdings) Sdn Bhd. The three companies are what BIMB considers its core business units.

BIMB had planned to hold a media briefing on “an impending corporate development involving the group” last Thursday but shortly after sending out its email invitation to the press on Wednesday, it cancelled the event.

This sparked speculation on what the corporate development might be, and whether any proposal — if it is still on the cards — may have required more work or rethinking, thus resulting in a delay in the announcement.

Nevertheless, BIMB went ahead with an analyst briefing on Thursday, but this was on its recently released second-quarter financial results. Analysts who attended the briefing say group CEO Datuk Seri Zukri Samat, who is also head of Bank Islam, made no mention of any potential corporate proposal.

Industry sources tell The Edge that the group has no immediate plans to embark on any merger and acquisition activity. It may be considering an internal restructuring that could result in Bank Islam becoming a listed entity, they say.

Analysts say they would not be surprised if BIMB was looking to transfer its listing status to Bank Islam, given that such plans had been bandied about by the group as early as 2013. Making Bank Islam the listed entity would give investors direct exposure to the Islamic lender that contributes about 80% to BIMB’s earnings.

STMB, which is also listed, accounts for the rest of BIMB’s earnings.

“If anything, I’d assume BIMB would do something similar to what RHB Group is doing. That’s one recent example of an internal restructuring — get the banking entity [RHB Bank Bhd] to take over the holding company’s [RHB Capital Bhd] listing status in a way that removes the holding company structure.

“I don’t know whether BIMB may want only one listed entity within the group, but if it does, then maybe a privatisation of STMB could also be a possibility. These are just some of the possibilities of a group restructuring,” says a banking analyst who tracks BIMB.

In April, RHB Capital proposed a rights issue to raise up to RM2.5 billion and announced internal restructuring plans that would result in the removal of its holding company structure, leaving RHB Bank as the listed entity. Those plans are ongoing. The rights issue will be injected into RHB Bank as new capital.

Analysts say the proposals would strengthen RHB Bank’s capital structure and reduce tax inefficiencies at RHB Capital (as single-tier dividends from subsidiaries would no longer be taxable in the hands of RHB Capital’s shareholders). They also point out that the holding company structure is no longer beneficial under the Financial Services Act 2013.

“BIMB could reap similar benefits if it does the same. It would be more tax efficient to have Bank Islam as the listed entity. It would also remove the holding company discount — BIMB trades at a discount now because of its holding company status. If there’s no holding company, it might help dividend payouts become a more straightforward process and reach shareholders’ pockets quicker,” the earlier analyst says.

BIMB is controlled by Lembaga Tabung Haji (55.91%). Other shareholders include the Employees Provident Fund (10.76%), Kumpulan Wang Persaraan (6.18%) and Permodalan Nasional Bhd (5.15%).

Under the Islamic Financial Services Act 2013, Islamic financial holding companies like BIMB are subject to more onerous prudential standards by Bank Negara Malaysia to ensure that they are able to meet capital requirements that support risks coming from the entities within the group.

“But BIMB’s Common Equity Tier-1 (CET-1) capital ratio of 10% seems adequate for now. I don’t know if there’s a need to reorganise just yet,” opines another analyst, adding that Bank Islam’s CET-1 stands at 12.2%.

As with most banks, analysts expect BIMB’s profits and financing growth to slow this year, given the tougher economic environment. Last year, its profit before zakat and taxation (PBZT) was 0.5% lower at RM815.4 million, mainly due to a RM68.2 million financing cost of the sukuk that BIMB raised to partly fund the acquisition of the remaining 49% stake in Bank Islam. (BIMB previously owned 51% of Bank Islam and acquired the 49% stake in December 2013.)

BIMB told analysts it expects to “maintain” its FY2014 performance this year and is targeting financing growth of 14% to 15%. It expects its gross impaired financing ratio to remain under 1.5%. The ratio stood at 1.18% as at end-June. For the first half of the year, PBZT grew 7.3% to RM430.2 million.

 “Looking forward, we see income growth, tighter liquidity and asset quality as the key challenges banks are facing, but BIMB’s liquid balance sheet (financing-to-deposit ratio of 72% as at 2QFY2015) and high loan-loss coverage levels (167%) should provide a downside cushion. We are keeping our ‘neutral’ call unchanged,” RHB Research’s banking analyst David Chong says in an Oct 9 report on BIMB.

Bloomberg data shows that of the seven analysts who track BIMB, five have a “hold” call on it, while the rest have a “buy”. Their average 12-month target for the stock is RM4.30. The stock, which hit a one-year high of RM4.29 in July, closed at RM4.13 last Friday.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share