KUALA LUMPUR (Oct 17): Public Bank Bhd’s (KL:PBBANK) capitalisation will remain healthy, even after fully accepting the mandatory general offer (MGO) to acquire all remaining shares of LPI Holdings Bhd (KL:LPI), said S&P Global Ratings.

The third-largest bank in Malaysia had announced last Thursday (Oct 10) to acquire a 44.15% stake in insurer LPI for RM1.72 billion, or RM9.80 per share, from the family of the late Tan Sri Teh Hong Piow. 

In terms of asset size, LPI is relatively small compared to Public Bank, accounting for less than 1% of its total assets, according to the rating agency in its report.

“We note that the cash consideration of RM9.80 per share represents an almost 25% discount to LPI’s latest share price, which lessens the initial outlay and impact on Public Bank’s capital, compared with its strong financial position,” S&P said.

LPI has also recorded profitable operations and healthy growth, which will likely be accretive to the bank’s earnings, it noted.

S&P is also of the view that the proposed partial acquisition of LPI will help Public Bank expand its geographical footprint in the general insurance segment and product offerings to existing clients, and support cross-selling to a larger customer base. 

Public Bank presently only conducts operations of its general insurance segment in Cambodia via its 55%-owned subsidiary Campu Lonpac Insurance Plc.

“The combination of these factors drives our projection that Public Bank’s risk-adjusted capital (RAC) ratio will remain sustainably above 10%, and underpins our strong capital and earnings assessment of Public Bank,” it said.

This acquisition will also add further stability to Public Bank’s overall profitability, said S&P, as the house expects interest margins to decline in the next 12-18 months. It noted that the bank’s net interest margin was 2.20% for the first half of 2024, two basis points lower than a year earlier.

Meanwhile, S&P believes the acquisition will have no impact on Public Bank's credit ratings (A-/Stable/A-2).

At the time of writing on Thursday, shares of Public Bank were traded four sen or 0.9% higher to RM4.50, valuing the group at RM87.35 billion.

LPI, meanwhile, was traded two sen or 0.16% higher to RM12.88, giving the group a market capitalisation of RM5.13 billion. 

https://www.theedgemarkets.com/node/730528