Pro-forma EPS dilution to CIMB would be manageable at around 1% over proposed merger

Based on swap ratio of banks’ shares.

CIMB Group Holdings and RHB Capital have made a joint application to Bank Negara to seek approval for a merger of the two banking groups together with Malaysia Building Society Bhd.

According to a research note from Nomura, in gauging the financial impact of the proposed merger, based on the swap ratio of 1.38 CIMB shares for each RHB Capital share, it is estimated that the pro-forma EPS dilution to CIMB would be manageable at around 1%.

The common equity Tier 1 (CET1) ratio impact would very much depend on the amount of cash paid for the MBSB acquisition.

Assuming the Employees' Provident Fund (EPF) unlisted) will take up the CIMB Islamic share offer and the remaining minorities opt for cash, Nomura estimates a total payout of MYR2.7bn.

Here’s more from Nomura:

This would lower the group CET1 ratio to ~8.8% from 9.5% currently. However, if all shareholders take up the share offer, the pro-forma CET1 ratio will remain at 9.5%, by our estimates.

While there is minimal impact to both EPS and CET1 ratio, CIMB’s ROE will be diluted to ~11% from our current FY14F estimate of 14%.

After the deal, we estimate EPF would be the single largest shareholder of the CIMB-RHB Capital group with a stake of 23%, followed by Khazanah (unlisted) with 20% and Aabar (unlisted) with 6%.

EPF is also likely to convert its MBSB shareholdings to a direct 35% stake in CIMB-RHB Islamic Bank.