KUALA LUMPUR: The sale of all its interests in insurance arms AmMetLife Insurance Bhd and AmMetLife Takaful Bhd for RM1.12 billion may enable AMMB Holdings Bhd (AmBank Group) to raise its dividend payout ratio to 40 per cent from 35 per cent.
Affin Hwang Capital is positive about the disposal as it allows AmBank to unlock the value of its insurance assets, enhance capital accretion and derive a 20-year stream of recurring fee income.
"AMMB embarked on divestitures of its non-core insurance assets as part of a capital-building initiative since April 2021 (which included a fundraising effort of RM810 million) and in an effort to regain a higher rating from Rating Agency Malaysia (RAM).
"At that time, RAM had downgraded AMMB from AA2/P1 to AA3/P1," Affin Hwang said in a note today.
On a more positive note, Affin Hwang said RAM had upgraded AmBank's credit rating to AA2/P1 and assigned a stable outlook for the banking group on Oct 2.
"We consider this a crucial development for AMMB as it positions them to negotiate lower funding costs for any new debt capital issuances," it added.
Affin Hwang expects AmBank to receive about RM560 million, from the selling price of RM1.12 billion.
This values the assets at a price-to-book value of 1.4 times for both AmMetLife and AmMetLife Takaful, in line with recent market transactions.
This infusion could potentially boost AmBank's group common equity tier-1 ratio by an additional 45 basis points, pushing it over 13 per cent.
Yesterday, AmBank announced that it was selling all its interests in insurance units AML and AMT for RM1.12 billion.
Its subsidiary AMAB Holdings Sdn Bhd entered into an implementation agreement with MetLife International Holdings (MetLife), Great Eastern Life Assurance (Malaysia) Bhd and Great Eastern Takaful Bhd for the proposed sale.
In the current ownership structure, ownership of AML and AMT is split evenly between AMAB and MetLife.
AMAB holds 50 per cent minus one share in AML, and MetLife owns the remaining 50 per cent plus one share.
Conversely in AMT, AMAB owns 50 per cent plus one share, and MetLife has 50 per cent minus one share.