Published on 25 Apr 2023.
RAM Ratings has placed Malaysian Industrial Development Finance Berhad’s (MIDF) corporate credit ratings (CCR) and MIDF Amanah Investment Bank Berhad’s (MAIB) financial institution ratings (FIR), both currently at A1/P1, on Rating Watch with a negative outlook.
The rating action follows Malaysia Building Society Berhad’s (MBSB) recent announcement that it had received notification from Bank Negara Malaysia that the Minister of Finance has approved its proposed acquisition of a 100% stake in MIDF. If the planned acquisition materialises, MIDF’s CCR and MAIB’s FIR will be aligned with the ratings of MBSB Group (MBSB and MBSB Bank are both rated A2/Stable/P1) in accordance with RAM’s Group Rating Methodology for Banks. MIDF’s standalone credit profile, however, remains intact.
The proposed acquisition has no immediate rating impact on MBSB and MBSB Bank. This is because the acquisition will reportedly be funded via a share swap, hence the impact on MBSB’s capital will be limited. Additionally, while we expect MBSB to derive synergies from this exercise, MIDF’s contribution to the combined group is seen to be small in the near to medium term due to the relative difference in sizes between the two organisations. On a pro forma basis, MIDF would contribute 11% and 13% (four-year average) of the merged entity’s pre-tax profit and total assets, respectively. With a share swap agreement, MBSB’s existing 66% shareholder – the Employees Provident Fund – will likely remain the majority shareholder of the combined entity.
MIDF’s involvement in capital market activities as well as asset management and stockbroking businesses will complement MBSB’s existing business and diversify its revenue streams. MIDF’s reach to small and medium enterprises, given its role in development finance, will also benefit MBSB’s long-term portfolio rebalancing strategy in favour of non-retail financing. On a pro forma basis, the assets of the combined group will stand at RM60 bil, making it the second largest standalone Islamic bank in Malaysia after Bank Islam Malaysia Berhad (rated AA3/Stable/P1).
We expect the Rating Watch to be resolved on completion of the corporate exercise, which will likely be within the next few months. We have just commenced our annual rating review on MIDF's and MAIB's ratings which we expect to conclude in the next two months.
RAM’s Rating Watch highlights a possible change in an entity’s rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated entity under RAM’s special surveillance. In a broader sense, the Rating Watch covers any event that may result in changes in risk factors relating to the capacity of an entity to meet its financial obligations.
Entities are put on Rating Watch when some of the abovesaid events are expected to or have occurred. The Rating Watch, however, does not mean that the rating will inevitably be changed. It only means that RAM is evaluating the rating and a final affirmation is pending. A ”positive” outlook indicates that a rating may be raised while a "negative" outlook indicates a possible downgrade. A “developing” outlook refers to unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.
Lee Yee Von
(603) 3385 2503
Wong Yin Ching, CFA
(603) 3385 2555
(603) 3385 2619
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Ratings on Malaysian Industrial Development Finance Berhad