PETALING JAYA: Alliance Bank Malaysia Bhd
’s surprise rights issue proposal will shore up its Common Equity Tier 1 (CET1) ratio to a more comfortable 13.5%, although there would be some dilution to financial year 2026 (FY26) earnings per share.
Alliance Bank’s CET1 is currently lower than peers and post the exercise, the bank’s CET1 ratio will increase by 1.1% percentage points to 13.5%, bringing it closer to the 14.3% for the banking industry.
On Bursa Malaysia, the bank’s shares experienced selling pressure and was down 9.2% in morning trade to touch RM4.62.
Last Friday, Alliance Bank announced plans for a renounceable rights issue to raise about RM600mil with most of the proceeds to be allocated for working capital.The entitlement date and issue price for the rights shares will, however, be determined later.
Notably, the bank’s major shareholder Vertical Theme Sdn Bhd (VTSB) has provided an irrevocable undertaking to subscribe in full for its entitlement under the exercise, which surprised the market as the talk for some time has been that shareholders of VTSB, which holds a 29.06% stake in the bank, may be looking to exit.
VTSB is 49%-owned by Singapore’s Temasek Holdings Pte Ltd.
The remaining 51% stake in Vertical Theme is held by Langkah Bahagia Sdn Bhd, which is owned by Singapore hotelier Ong Beng Seng, private equity player Ong Tiong Sing of RRJ Capital and corporate adviser Seow Lun Hoo. Recall that Langkah Bahagia was previously linked to the late Tun Daim Zainuddin.
According to Alliance Bank’s announcement, its board intends to set the issue price at a discount to the theoretical ex-rights price, based on the 5-day volume-weighted average price (VWAP) leading up to the price-fixing date.
“For illustration, assuming an issue price of RM4.20 per rights share (reflecting a 20% discount to the last 5-day VWAP of RM5.247) and an entitlement ratio of 3 rights shares for every 32 Alliance Bank shares, the bank's net asset per share would decrease slightly from RM4.63 to RM4.59.
"Based on this assumption, we also estimate the exercise to dilute FY26 earnings per share by 8-9% and reduce return on equity (ROE) by approximately 1%-point,” TA Research said.
Despite the short-term dilution, TA said the rights issue will help strengthen Alliance Bank’s capital buffer, particularly as loan growth accelerates under its Acceler8 transformation strategy.
“To recap, in its recent 4Q24 results, the bank reported a 14.2% year-on-year (y-o-y) loan growth, which significantly outpaced the industry average of 5.6%.
Management remains optimistic about sustaining this momentum, in addition to focusing on customer acquisition, enhancing product and channel offerings to boost fee income, and expanding its Islamic banking propositions under the Acceler8 strategy,” added TA, which is not making changes to its earnings estimate at this point.
The research firm also expects the bank, the country’s smallest by assets, to be able to maintain a dividend payout of at least 40% for FY25.
“We maintain the stock’s target price at RM5.80 and reiterate our Buy recommendation,” said TA.
CGS International Research said the proposed rights issue “came as a negative surprise” as the bank did not previously guide for any plans to raise equity capital.
However, it notes that the bank’s loan growth is robust at 14.8% y-o-y as at end-Dec 2024, which was the strongest in the sector. The potential entry of DBS Group Holdings Ltd as a major shareholder in Alliance Bank could be positive for its loan and fee income growth going forward.
Temasek is the single largest shareholder of DBS and is reportedly eyeing to buy the former’s stake in Alliance Bank.
The local bank’s other major shareholders are the Employees Provident Fund and Global Success Network Sdn Bhd, which is the investment vehicle of Lee Thiam Wah of retail chain 99 Speed Mart.
Alliance Bank expects the rights issue exercise to be completed in the third quarter.
