KTB to raise Bt14 bn with rights issue

Although shareholders may experience some short-term dilution, they can look forward to improving earnings as the expansion takes hold, brokerages said last week.
KTB said on Thursday that 2.8 billion shares at Bt5.15 par value would be offered to existing shareholders at the ratio of one new share to four old shares. Any unsubscribed shares will be offered to shareholders expressing an interest in taking shares in excess of their rights.
Any shares leftover from the subscription process would then be offered to specific investors at not lower than Bt12.60 apiece, which may be lower than 90 per cent of the market price. An extraordinary shareholders’ meeting was set to be held last Thursday to approve the recapitalisation.
Finance Minister Kittiratt Na-Ranong said the Financial Institutions Develop-ment Fund, which owns 55 per cent of KTB, has enough liquidity to subscribe to the new shares.
Tisco Securities noted that KTB’s capital hike from Bt57.6 billion to Bt72 billion has been anticipated due to the stricter capital rules under Basel III of the Bank for International Settlements as well as its massive loans to Sahaviriya Steel Industries.
Banks are not allowed to lend more than 25 per cent of their capital to a single borrower. Tisco and Bualuang Securities estimate a 20-per-cent dilution if the new shares are fully subscribed, while Tier-1 capital will rise from 8.6 per cent to 10.9 per cent.
At Bt12.60 a share, KTB will raise Bt35.2 billion.
Bualuang Securities said the dilution effect would be offset by improvement in earnings next year.

BANK EXPECTED TO PERFORM BETTER
“The much-expanded capital base would enable KTB to approve more and bigger loans to state agency and SOE (state-owned enterprise) projects next year. We expect the bank to perform better after the capital increase is completed in the fourth quarter of 2012. Because of the role that KTB plays as financier to state agencies and helping to implement government policy objectives, we anticipate accelerated lending growth next year,” it said.
Asia Plus Securities agreed.
“We have a positive perspective toward the declaration of capital increase of KTB as it helped unlock the concern that has pressured the share price,” it said.
The capital increase will help strengthen the capital adequacy ratio of the bank to rival the industry’s average of 11-12 per cent.
Its Tier-1 capital to risk-weighted assets will increase to 10.8 per cent and capital adequacy ratio to 15.8 per cent from 7.9 per cent and 12.9 per cent at the end of this year.
This would be sufficient to support growth during the peak cycle of both domestic investment, following GDP, and international investment, following mergers and acquisitions and AEC liberalisation, in two years. Earnings per share is projected to grow by as much as 12.7 per cent in 2012 and 17.4 per cent in 2013 despite the dilution.
Asia Plus has revised up its earnings forecasts for the bank in 2012 and 2013, as the capital increase will reduce the bank’s deposit-related burden.
“We reiterate our buy recommendation for KTB only on price weakness in order to avoid risks from short-term psychological impacts. For investors holding KTB, we recommend exercising their rights to buy the new ordinary shares.”
The new 2012 fair value after the forecast revision is B21.60, dropping slightly from B21.63, based on 1.69 times price to book value under the long-term return-on-investment forecast of 16 per cent, it added.
The Financial Institutions Develop-ment Fund is expected to maintain its 51-per-cent stake in KTB after the capital mobilisation. Asia Plus Securities said this will ensure continued good credit ratings, as KTB will retain support by the government, such as low-cost deposits and the mega project auction.