Why did you decide to do the bond issue?
CIMB's capital base currently comprises almost entirely of common equity, that is Tier 1 capital. Therefore, the issuance of CIMB's Tier 2 sub-debt of $100 million formed an integral part of the firm's proposed capital swap exercise where RM380 million was to be raised in the form of Tier 2 capital to replace RM350 million of Tier 1 capital, which will be returned to CIMB Berhad's shareholders. This capital restructuring exercise is return-on-equity enhancing.
Raising USD denominated as opposed to Ringgit denominated is consistent with the funding requirements of our USD denominated assets.
Will there be further capital reduction exercises such as this in order to make CIMB even more efficient from a capital point of view?
Since CIMB's IPO roadshow in late 2002, we have continuously articulated to the investment community that enhanced capital management is a key priority of the firm. After the issuance of the subordinated debt and proposed capital swap, the bank's proforma risk weighted capital ratio still remains high at 22.9% with Tier 1 capital constituting approximately 68% of total capital. The average risk weighted capital ratio in the banking sector is approximately 13.4% with the minimum regulatory requirement at 8%. Management will continuously explore ways of further optimising the capital structure of the firm, taking into account business plans and the view of our regulators and rating agencies.
Were you concerned about the timing given the global market weakness and the failure of the Titan Petrochemical deal to price?
With the Asian spreads tightening significantly and fairly attractive US Treasury yields, we felt this was an opportune time to come to market. The deal was successfully priced at a rate of 5.036%, equivalent to 220 basis points above the prevailing US Treasury yield, which is tighter than the price guidance of 225 to 235 basis points above the 5-year US Treasury yield. This is by far the cheapest absolute cost of US dollar subordinated debt funding for a Malaysian bank.
The Titan Petrochemical deal had quite different dynamics to CIMB's.
Given the small size of the deal and the perception that investment banks are weaker credits than commercial banks, how did you ensure that pricing was so tight?
The deal was oversubscribed by 4.25 times and this demonstrates the confidence of the international bond investors in the growth and prospects for the Malaysian capital markets as well as their understanding and appreciation of CIMB's credit. We also had a good roadshow in Singapore and ensured that the CIMB story was clearly and consistently articulated.
Were you happy with the ratings that you got from Fitch and Moody's or do you think they took too formulaic an approach to your rating?
Lets just say that we have full respect for the two agencies and their respective methodologies.
Why did you keep it to just $100 million when it was 4.25 times oversubscribed?
We only wanted $100million to ensure that we remain comfortably within the range of capital mix preferred by our regulators and rating agencies.
After the failure of your purchase of the stockbroking operations of TA Enterprises, are you still looking to expand in this area?
Despite being unable to sign the sale and purchase agreement with TA Enterprises, we are still very focused on expanding the retail side of the business and will continue to explore all options available. At the very least, we will continue to grow our retail distribution infrastructure and product range.
