BIMB Holdings' new acquisition strategy of Bank Islam expected to appease regulators - IFN

BIMB Holdings' new acquisition strategy of Bank Islam expected to appease regulators

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MALAYSIA: BIMB Holdings has announced that the security backing its upcoming RM1.5 billion (US$473.7 million) Sukuk issuance to fund its acquisition of the remaining 49% stake in Bank Islam will not comprise of the former’s shares in the bank, following Bank Negara Malaysia (BNM)’s initial disapproval. The acquisition will now comprise of the legal assignment over the proceeds from the exercise of the warrants, as well as the legal assignment and charge over a sinking fund account in which all proceeds from the exercise of the warrants will be deposited into. According to analysts at Maybank IB Research (MIBR), the new move is expected to be favorable to the central bank and regulators as it removes the possibility of creating distortion in BIMB’s capital adequacy ratio to align with the upcoming implementation of Basel III capital adequacy requirements. MIBR opined: “We believe any increase in the funding cost is likely to be mild and more positively, this move should be more palatable to BNM and pave the way for the consolidation of the group’s interest in Bank Islam.” The report further expounded that the Sukuk will carry a higher profit rate of 6.2-6.25%, exceeding the original estimate of 6% as means of compensating BIMB’s shareholders due to the heightened risk. This will increase the group’s annual funding cost by approximately RM3 million (US$947.4 million) per year, which is deemed to be manageable. MIBR also expects the deal’s earnings per share to accrue to 7% in 2014, without warrants dilution. Having announced the acquisition in August, BIMB looks to complete the transaction by the end of this year. The extraordinary general meeting for the deal is slated to commence in mid-October.