Published March 25, 2009

Public Bank eyes RM1b initial capital issue

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(KUALA LUMPUR) Malaysian lender Public Bank has not decided on the size of the first tranche of its RM5 billion (S$2.07 billion) planned capital issue, but a top official said on Monday that RM1 billion is an 'efficient issue size'.

Uncertainty: It has fuelled market concerns that the Malaysian bank was expecting a sharp rise in loan loss provisions

Public Bank, the country's third-largest lender, said last week it will raise up to RM5 billion to strengthen its balance sheet.

The capital raising, which analysts said was larger than initially anticipated, has fuelled market concerns that the Malaysian bank was expecting a sharp rise in loan loss provisions.

Public Bank's chief operating officer Leong Kwok Nyem said the capital-raising plan could be done over seven years.

'What was not mentioned in the announcement is that the tenure of the programme is seven years. It is highly unlikely that Public Bank will issue the entire programme limit in one go,' he told Reuters.

'At the moment, no decision has been made on the size of the initial issue, but given the size of the bank's operations, an efficient issue size would be around the RM1 billion level,' he said.

Mr Leong said the capital raising plan is expected to boost both the bank's Tier-1 capital ratio as well as the risk weighted capital ratio.

'The increase in the ratio will depend on the size of the initial issuance,' said Mr Leong.

An issue size of about RM1 billion would improve the bank's core capital ratio to 8.7 per cent from 7.7 per cent whilst the risk weighted capital ratio will increase to 14 per cent from 13.1, he added.

Malaysian banks have tapped shareholders and the debt markets to raise fresh capital in recent months as industry bad debts are expected to spike this year as the South-east Asian country heads for its first recession since the Asian financial crisis a decade ago.

Top lender Maybank said last month it would raise RM6 billion via a rights offering and fourth- ranked RHB Bank said late last year it would raise up to RM1.1 billion from the debt market.

Public Bank shares ended 4.14 per cent higher at RM7.55 on Monday. The stock has dropped 14.66 per cent over the past month, underperforming the wider market's loss of 1.28 per cent. -- Reuters