Bumiputra Commerce Holdings – TPG makes investment into Group

November 4, 2008 at 3:55 am Leave a comment

Bond issue of up to USD150m, with warrants

The Group announced yesterday the issuance of up to USD150m senior unsecured guaranteed bonds, together with 5-year warrants in a number equal to the RM equivalent of the nominal value of the Bond divided by the initial strike price of RM10.00. The entire issue will be subscribed by TPG Malaysia Finance L.P. It is however subject to the successful tender offer of Bank Thai Public Company Limited, of which the proceeds of this issue will be used to repay borrowings arising from this particular acquisition, and for other working capital requirements. Assuming USD150m is issued, the corresponding amount of warrants to be issued would be 52.8m (at current USDMYR exchange rate of 3.52). While dilutive impact to bottom-line is insignificant, it is more important to note the confidence of TPG in the Group in making an equity investment
upon conversion of the warrants at a 56% premium to current market price, incidentally close to our RM9.60 valuation of the Group.

Recent slide in share price warranted?

Financial institutions have been in the limelight globally owing to a myriad of reasons, principally of which are potential mark-to-market losses which could decimate capital adequacy ratios. Recall however that the Group has already taken a combined hit of RM881m in its P&L and reserves from its trading books in the previous quarter when bond yields were much higher than they are now.

While its fixed income investments may not pose as much a risk, one asset class which could cause a dent to bottom-line is the RM1.5bn share portfolio it carries in its books (as at June 30). Tracking this against the % loss in KLCI from June 30 till today could cause a potential impairment of RM360m to its bottom-line, which may however be mitigated by possible write backs from provisions in recent quarters. BNM has also recently allowed financial institutions to reclassify securities out of the held-fortrading category, an avenue the Group could utilize to provide temporary relief from any further adverse effects to its profitability.
We also see no major risk to our forward loans growth expectation of 5% – 6% as we do not expect a big decline in Malaysia’s economic growth in 2009.

Maintain BUY call and TP of RM9.60.

We believe negative expectations have been factored into current prices, and present an opportunity for accumulation at P/B levels last seen in the recent recession before it had transformed itself into the universal banking giant that it is today, with a more diverse and stronger earnings stream.

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