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Malaysia’s CIMB falls on worries over Hin Leong Trading exposure

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CIMB Group Holdings BHD’s share price fell over 3% in early trade Wednesday on investors’ worries the bank is believed to have exposure to Singapore’s Hin Leong Trading (Pte) Ltd (HLT)

Share prices of Malaysia’s CIMB Group Holdings BHD’s fell over 3% in early trade Wednesday on investors’ worries the bank is believed to have exposure to Singapore’s Hin Leong Trading (Pte) Ltd (HLT).

The bank shed 3.6%, or 13 sen to £0.64 (RM3.48) with 2.16 million shares traded.

CIMB is believed to have a significant exposure to the troubled oil trader HLT that owes almost £3.25bil (US$4bil) to more than 20 banks, including DBS Group Holdings Ltd, HSBC Holdings Plc and Standard Chartered Plc.

Singapore police said they have launched an investigation following news that the founder of HLT had told the company not to disclose hundreds of millions of dollars in losses over several years.

It has been reported that HLT now owes some £2.54bil (US$3.85bil) to 23 lenders, including HSBC, Societe Generale, Standard Chartered and Deutsche Bank.

HSBC has the biggest exposure at about £487.18mil (US$600mil) while Singapore’s three biggest lenders are owed a combined £405.98mil (US$500mil) or thereabouts.

News reports indicate that CIMB may be the only Malaysian bank with exposure to HLT, with an indicative loan exposure of £100.68mil (US$124mil).

Meanwhile, UOB Kay Hian Malaysia Research said HLT has a small impact to CIMB’s book value while some provisions may have been made. The total loan exposure to Hin Leong only represents 0.9% of the group’s book value and 0.1% of its loan base.

Additionally, we think Malaysian banks including CIMB should be better prepared in anticipating vulnerable oil & gas companies from the last oil price crash in 2016, especially commodity-related trading companies with only inventories as their key assets, it said.

Maintain Buy and target price of RM4.90 (0.8 times FY20F price-to-book, 8% return on equity). We think that most of the negatives have been priced in and the stock is further supported by dividend yield of 6.4%, it said.

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