RHB Capital shares lose some shine

RHB Capital Bhd's shares lost some gloss today following news reports that it planned to take over CIMB Group in a bid to create a financial institution with a market value of some RM86 billion.

A dealer said negative response to the proposed RHB-CIMB merger prompted investors to pull out of the stocks.

The shares remained in red throughout the day before ending the day one sen lower at RM9.15, after opening at RM9.14 this morning.

CIMB ended flat at RM8.93.

A news report today saying CIMB was not in talks with RHB Cap for a merger put further pressure on the stock's price.

OSK Research, in a note today, said with RHB Cap being significantly smaller than CIMB, acquiring the latter would result in greater value destruction for it post-merger.

"The Employees Provident Fund, one of RHB Cap's main shareholders, can well afford to back an all-cash deal, which is likely to be the preferred option, if Khazanah Nasional Bhd is indeed interested in all-out exit," it said.

It said the post-merged RHB-CIMB entity would face a potential earnings per share dilution of 12.5 per cent.

"More importantly, the return on equity (ROE) of RHB Cap will deteriorate from 15 per cent to eight per cent.

"CIMB will face even greater value destruction from such a merger as its current ROEs are hovering at 16 per cent to 17 per cent," it said.

OSK said assuming a fair acquisition of all-cash offer pricing of RM9.60/CIMB share, RHB Cap may need to raise close to RM58 billion in new equity via a rights issue at a 25 per cent discount to the current market share.

"This is to maintain the enlarged group's core equity ratio at a reasonable 8.2 per cent," it said.

OSK said it has retained its 'buy' call on RHB Cap and fair value at RM10.16.

It also maintained its 'buy' call on CIMB at fair value of RM9.15. -- Bernama