RHB Capital (RHBCap) announced that Aabar Investment PJS (which currently owns 21.09% of RHBCap) has not given its undertaking to subscribe to its portion of the RM2.5bn rights issue. Meanwhile, the other major shareholders, i.e. the EPF and OSK Holdings, have given their undertakings to subscribe to the rights issue. At this juncture, there will be two scenarios involved whereby if: i) Aabar’s shareholding declined to 15% or less on the entitlement date, a number of 517.7m rights shares will be allotted to entitled shareholders on a 1-for-5 basis, hence raising RM2.5bn in proceeds; ii) if Aabar’s shareholding remained at 21.09%, 486.2m rights shares will be allotted to shareholders, hence raising proceeds of RM2.3bn. (Source: Bursa Malaysia)

Comments: From our understanding, RHBCap’s management believes that the underwriters involved in the placement of the unsubscribed portion of the rights issue would be able to complete the exercise by end-2015. We still keep our SELL rating on RHBCap, with our PT at RM5.54 (based on 1x P/BV on 2016E BVPS) under the reorganized RHB Bank Group. In our view, there are still headwinds arising from an expected NIM deterioration (due to increasing funding cost), weak loan growth as well as potentially rising credit costs. It is still a challenge for the RHB Group to achieve an ROE target of 13% by 2017.

Source: Affin Hwang Capital Research - 24 Nov 2015