Krung Thai Bank

Krungthai Bank Plc (KTB)

What’s new? KTB announced that it will raise capital through a rights issue at a ratio of four existing shares to one new share at a price of Bt12.60. The book will close on the rights offering on August 30, 2012 (management declined to specify a precise period for the offering; we assume that it will go ahead some time in 4Q12). The bank also announced an interim DPS of Bt0.36 for 1H12 operations.
Dilution effect will be 20%: The bank plans to issue 2,796m new shares for the capital increase, which implies a 20% share dilution (assuming that all current shareholders buy into the rights issue). We expect KTB to more-or-less offset the dilution effect with improved earnings next year.   
What the capital increase will mean: The capital-raising will boost the bank’s CAR from 12.9% to 15.24% (Tier-1 will jump from 7.92% to 10.25%). The much-expanded capital base would enable KTB to approve more and bigger loans to state agency and SOE projects next year.
Action: We expect the bank to perform better after the capital increase is completed in 4Q12. 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. We will attend its analyst meeting today before we make a decision on our rating. In the interim, our HOLD call stands.