[RAM] No rating impact from Public Bank's proposed acquisition of LPI Capital stake

RAM Ratings does not expect Public Bank Berhad’s (the Group) proposed acquisition of a 44.15% stake in LPI Capital Berhad (LPI) to impact the AAA/Stable/P1 financial institution ratings of the Group and its core subsidiary, Public Islamic Bank Berhad. Last affirmed in June 2024, the ratings (Table 1) are anchored on the Group’s robust asset quality, solid balance sheet and resilient earnings.

On 10 October 2024, Public Bank announced its plan to purchase a 44.15% stake in general insurer LPI – a related party through common shareholders and directors – for RM1.72 bil in cash. Regulatory clearance from the Ministry of Finance and Bank Negara Malaysia has already been obtained. A general offer for the remaining shares will be triggered although we do not foresee a significant take-up, given the discounted offer price of 25% from LPI’s last traded share price prior to the announcement. Even if its shareholding does not exceed 50%, Public Bank will be able to consolidate LPI’s earnings upon obtaining management control. The proposals are expected to be completed by 1Q 2025, subject to the approval of non-interested shareholders.

Lonpac Insurance Berhad, LPI’s key subsidiary, ranked among the top six general insurers by gross direct premium in 2023. Fire (40%) and motor (24%) are its key classes of insurance by gross written premiums. The proposed acquisition will enable Public Bank to establish a market presence in the domestic general insurance space and reap the synergistic benefits of cross-selling and developing integrated products and services. LPI reported a pre-tax profit of RM394.9 mil and RM227.9 mil in FY Dec 2023 and 1H FY Dec 2024, respectively; a modest contribution of circa 4%-5% to Public Bank’s pro forma fully consolidated earnings. LPI’s total assets as at end-June 2024 accounted for less than 1% of Public Bank’s asset base.

From a capitalisation standpoint, the proposed purchase is expected to shave off around 70 bps from Public Bank’s common equity tier-1 capital ratio at bank level and 20 bps at group level. These ratios (net of proposed dividends) will drop to a respective 12.4% and 14.4% on a pro forma basis, and are still deemed sound. To be funded internally, the deal is also envisaged to have minimal impact on the Group’s liquidity profile. 



 

Analytical contact
Jeremy Noel Paul
(603) 3385 2556
jeremynp@ram.com.my

Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my

Media contact
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(603) 3385 2500
sakinah@ram.com.my