RAM Ratings assigns ratings to RHB Investment Bank’s senior notes and Basel III-compliant subordinated notes

Published on 23 August 2013

RAM Ratings has assigned respective ratings of AA2/Stable/- and AA3/Stable/- to the senior medium-term notes (“MTNs”) and subordinated MTNs to be issued under RHB Investment Bank Berhad’s (“RHB Investment Bank” or “the Bank”) Proposed Multi-Currency MTN Programme of up to RM1 billion (“the Proposed MCMTN Programme”). Concurrently, RAM has reaffirmed RHB Investment Bank’s financial institution ratings at AA2/Stable/P1, along with the AA3/Stable/- rating of the Bank’s outstanding debt instruments (refer to Table 1).

Table 1: RHB Investment Bank’s outstanding debt instruments

Instrument	Rating action	Rating
RM245 million Subordinated Notes (2012/2022)	Reaffirmed	AA3/Stable/-
RM400 million MTN Programme (2008/2022)*	Reaffirmed	AA3/Stable/-

* Transferred from OSK Investment Bank Berhad to RHB Investment Bank following the completion of the merger between the 2 entities on 13 April 2013.

The Bank represents RHB Capital Berhad’s (“RHB Capital” or “the Group”) investment-banking and stockbroking businesses under its universal-banking platform. RHB Investment Bank leverages on the balance sheet of its sister bank, RHB Bank Berhad, for larger underwriting capacity and is operationally integrated with the other entities within the Group. Given its strategic importance, the Bank’s financial institution ratings incorporate substantial support from the Group.

The subordinated MTNs to be issued under the Proposed MCMTN Programme are Basel III-compliant, and subject to a contingent write-down feature. RAM believes that the risk of a Malaysian bank being non-viable is adequately captured in its long-term financial institution rating. This view incorporates our interpretation of the circumstances that would constitute a non-viability event in Malaysia, as articulated in Bank Negara Malaysia’s Capital Adequacy Framework on Capital Components. The subordinated MTNs under the Proposed MCMTN Programme are rated 1 notch below RHB Investment Bank’s long-term financial institution rating, to reflect their lower priority when it comes to claims upon bankruptcy or liquidation, relative to the Bank’s senior unsecured creditors.

RHB Investment Bank has emerged among the top stockbrokers in Malaysia subsequent to its merger with OSK Investment Bank Berhad (“OSK Investment Bank”, now known as OSKIB Sdn Bhd) on 13 April 2013. The merger has also enabled the Bank to benefit from an immediate regional investment-banking franchise and income diversity, as it has gained instant access to OSK Investment Bank’s regional markets while leveraging on the latter’s niche in arranging small- to mid-cap deals.

RHB Investment Bank has recently appointed Mr Mike Chan Cheong Yuen as its Managing Director/CEO in August 2013. Mr Chan, who has been with the RHB Group since May 2010, was the Bank’s Officer-in-Charge since the departure of the former managing director in 2011. He also holds the position of Director in RHB Bank’s Corporate Banking Division. RAM will continue monitoring the potential integration issues that may surface over the near term following the completed merger with OSK Investment Bank.

RHB Investment Bank’s pro forma assets (with the consolidation of OSK Investment Bank) are expected to be valued at about RM15 billion, of which about 12% consists of gross loans. Meanwhile, the Bank’s earnings profile is inherently volatile due to its involvement in the capital markets and stockbroking, which are highly correlated to market conditions and sentiment. It recorded a meagre pre-tax profit of RM2.9 million in 1Q FY Dec 2013, amid the uncertainties and subdued local capital markets leading up to the 13th Malaysian general elections. Including OSK Investment Bank’s numbers for the quarter, RHB Investment Bank’s pre-tax profit came up to RM53.8 million (on a pro forma basis). The Bank’s pro forma common-equity tier-1 and overall risk-weighted capital-adequacy ratios stood at approximately 22% as at end-March 2013, which are deemed healthy relative to its risk profile.

Media contact
Kwan Ji-Ling
(603) 7628 1115
jiling@ram.com.my