-  The Star reported RHB Cap’s major shareholder, the Employees Provident Fund (EPF) is considering buying the 59% stake that it does not already own and has hired Goldman Sachs to advise on its options. The rumour is not new and was first reported in April 2013, but what is new is the reported mandate given to Goldman Sachs by EPF.

-  The news report said that EPF plans to privatise RHB and later merge it with Malaysia Building Society Bhd (MBSB), which is the other major financing institution that EPF owns with a 64.9% stake. This has been reported earlier.

-  The Star reported that, based on RHB’s current share price, EPF will need to fork out RM8.8bil for the remaining stake. Based on MBSB’s latest closing price, we estimate that EPF’s stake is worth RM3.27bil.

-  The Star said that Aabar Investments (Aabar), is unlikely to favour the privatisation. To recap, post the OSK Investment Bank (OSKIB) takeover by RHB Cap from OSK, we estimate EPF’s stake at 41.0%, Aabar’s at 21.9% and OSK at 9.8%. The OSKIB stake was acquired through the issuance of 245mil new RHB Cap shares priced at RM7.36, to OSK. We estimate that Aabar’s stake was thus diluted to 21.9% from 25.0%, while EPF’s stake was diluted to 41.0% from 45.0%.

-  Aabar was reported to have paid RM10.80/share from Abu Dhabi Commercial Bank, which had 25% stake in RHB Cap then, in June 2011. This worked out to a P/BV of 2.3x. Abu Dhabi Commercial Bank first acquired the 25% stake in RHB Cap in May 2008 at RM7.20/share or at a P/BV of 2.2x.

-  We reaffirm our view that any proposal to privatise RHB Cap is likely to require concrete plans for re-listing, which means that main hurdle to privatisation is the viability of relisting RHB Cap later.

-  Meanwhile, RHB Cap has also announced that the ex-date for its final single tier dividend of RM0.1609 on 2 July 2013. RHB Cap has also recently announced that the issue price for the new dividend reinvestment plan (DRP) in relation to its final dividend has been fixed at RM7.63 or 10% discount to the VVAMP of RM8.63 minus the RM0.1609. We are neutral on the privatisation rumour. Maintain buy for RHB Cap’s cheap valuations.

Source: AmeSecurities