Amcorp Berhad, the ultimate parent of the entire Arab Malaysian group, raised $100 million yesterday (February 3) from an exchangeable into AMMB, the financial services holding company that owns a bank, insurance arm and investment bank. The Merrill Lynch led deal holds the distinction of being the longest-dated outstanding equity-linked deal from Malaysia and the one with the highest exchange premium. Both feats were achieved because the group was prepared to offer a fairly chunky yield.
Terms comprise an issue price of par, 1% coupon, four-year put price of 118.65% and five-year redemption price of 123.94% to yield 5.25%. This was the mid-point of a 4.9% to 5.6% range.
The exchange premium was set at 32.5% to the stock's M$3.30 close in Malaysia on Thursday, again the mid point of a 30% to 35% range. There is also a call option after four years subject to a 130% hurdle.
Underlying assumptions incorporate a bond floor of 96%, implied volatility of 26% and theoretical value of 98%. This is based on a credit spread of 225bp, dividend yield of 1.2%, stock borrow cost of 5% and historic volatility of 22.5%.
In volatility terms, the valuation is aggressive, but it is difficult to play and not that attractive given the stock's lack of beta. Specialists say the key was the credit assumptions since there is no asset-swap available and the Amcorp credit is not the easiest sell. It was pitched as a de-leveraging story, although two-thirds of its stake in AMMB remain pledged towards other borrowings. It has a debt to assets ratio of 27%
The part of the group to be rated is AmMerchant Bank (AMMB), which has a BB rating from Standard & Poor's and a BB- rating from Fitch.
But the combination of a highly defensive bond floor and an attractive yield were the main draws, with specialists reporting large orders from fixed income accounts. The book is said to have closed three times covered with participation from just under 40 accounts, of which 50% were from Asia, 30% from Europe and 10% from the US. Unusually, there is also said to have been some interest from Malaysia itself.
Proceeds are being used to fund a restricted stock offering in what analysts describe as a complicated corporate restructuring. Pre-deal, Amcorp owned 31.3% of AMMB Holdings and this will drop to 26.3% on full conversion. AMMB in turn owns several financial assets including an investment bank which is in the process of being listed.
Existing shareholders of AMMB can subscribe to one new share in AIGB (AmInvestment Group Berhad) for every five they currently own. The listing price has been fixed at M$1.40 and on completion, AMMB will see its stake drop from 100% to 51%.
