In a conditional share purchase agreement signed today, CTOS Digital proposed to acquire 1,990,000 ordinary shares in RAM, representing a 19.9% interest, for a cash consideration of RM51.3 million from Oscar Matrix Sdn Bhd, a wholly owned subsidiary of Creador IV, linked to Brahmal Vasudevan, a private equity funder.
It also proposes to acquire another 30.9% equity interest in the rating agency at prices to be determined later, which will take its stake in the credit rating agency to 70%.
Another of Brahmal’s private equity firms, Creador, presently holds a 30.1% stake in CTOS Digital.
Between July 2021 and May 2022, CTOS Digital entered into share purchase agreements with CIMB Bank, Standard Chartered Bank Malaysia Bhd, OCBC Bank Bhd, Affin Bank Bhd, Affin Hwang Investment Bank Bhd, and Alliance Investment Bank Bhd to acquire a total of 1,922,500 RAM shares, representing a 19.2% equity interest, for a total cash consideration of approximately RM49.6 million. Those purchases were at an average price of RM25.82 per share.
In a filing with Bursa Malaysia, CTOS Digital stated that the RM25.80 per share purchase price was arrived at on a “willing-buyer, willing-seller” basis after taking into consideration RAM’s audited profit after tax for the financial year ended Dec 31, 2021 of approximately RM14.2 million, and RAM’s audited net assets of approximately RM176.4 million as at Dec 31, 2021.
The purchase price represents a price-to-earnings ratio of approximately 18.2 times and a price-to-book ratio of approximately 1.5 times, which are in line with the PERs and PBRs of other internationally listed credit rating agencies.
On the proposed additional acquisition of up to 3,087,500 shares in RAM, representing approximately 30.9% equity interest, the Bursa filing stated that the price will not be more than RM28.50 per share for a total cash consideration of not more than RM88 million over a period of 12 months from the date of the company’s shareholders’ approval.
The approval will be sought at an extraordinary general meeting, at a price to be mutually agreed upon between the sellers and CTOS Digital.
Upon completion of both proposed share acquisitions, CTOS Digital is expected to hold up to 7,000,000 RAM shares, representing a 70% equity interest in the rating agency.
The Securities Commission Malaysia (SC) had earlier come under fire for giving CTOS Digital the go-ahead to acquire additional shares in RAM.
Previously, no single institution was permitted to hold a stake of more than 20% in a rating agency, a ruling initially imposed by Bank Negara Malaysia. However, in April this year, the SC approved CTOS Digital’s application to acquire a stake in excess of that ceiling, which paved the way for its recent acquisitions.