Published: Friday June 22, 2012 MYT 11:10:00 AM
Updated: Friday June 22, 2012 MYT 12:08:28 PM
RAM: Kenanga's ratings unaffected by RM875m acquisition of ECM Libra IB
KUALA LUMPUR: Kenanga Investment Bank Bhd's (Kenanga IB)proposed RM875.1mil acquisition of ECM Libra Investment Bank Bhd (ECM Libra IB) has no immediate impact on its financial institution ratings rated A3/Stable/P1.
RAM Rating Services said on Friday the proposed merger would strengthen Kenanga IB's stockbroking franchise while broadening its distribution network.
It said the enlarged entity would become the second-largest stockbroker by trading volume and the third biggest by trading value.
"In particular, Kenanga IB's niche in the higher-yielding retail stockbroking sphere will be further solidified since ECM Libra IB is also largely retail-oriented," said the rating agency.
However, RAM Ratings said similar to all acquisitions, there could be integration risks, especially with respect to aligning the best practices of both firms as well as the retention of human capital and clients.
"For cost efficiency, eliminating resource duplication would likely be another focus point of the bank," it said, adding it would continue monitoring the developments in the proposed acquisition.
To recap, Kenanga IB's acquisition of ECM Libra IB would be financed via cash (RM659.6mil), new shares (RM120mil) and redeemable non-convertible unsecured loan stock (RM95.5mil).
Post-acquisition, Kenanga IB's overall risk-weighted capital-adequacy ratio was expected to be lowered to about 24% (from 38.6% as at end-March 2012), although still deemed adequate.
As at end-March 2012, the bank's cash and short-term funds totalled RM1.1bil, which would amply cover the cash payment for the acquisition.