According to financial executives close to the situation, ECM Libra is expected to distribute the cash proceeds from the divestment to existing shareholders in the form of a special dividend of at least 60 sen per share.

Company executives declined to comment, but financial executives close to the situation said the agreement on the disposal of the financial business to K&N Kenanga could be signed as early as tomorrow.

ECM Libra announced last week that it had received approval from the Ministry of Finance to proceed with the disposal of its investment banking and stockbroking operations to K&N Kenanga. The crucial green light came eight months after Bank Negara Malaysia (BNM) gave the two financial groups the approval to commence merger negotiations.

The details of the proposal have yet to be announced by both parties. But financial executives told The Edge Financial Daily that K&N Kenanga’s purchase of ECM Libra’s financial interests would be funded through a combination of cash and the issue of new shares and loan stocks.

The cash proceeds will come from deposits that ECM has placed with BNM as part of the capital requirement for an investment bank. The divestment will free up the RM500 million tied up with BNM.

Based on a share capital of 830.9 million shares, the RM500 million will translate into about 60.17 sen per share. ECM Libra’s share price closed at 79 sen last Friday at a substantial discount over its net asset value of RM1.23 per share as at Jan 31.

Over the past two financial years, the ECM Libra board has been generous in its dividend payouts.

In March, the board declared a single-tier dividend of 2.4 sen per share, representing a payout ratio equivalent to 63% of the net profit for FY12 ended Jan 31. In FY11, the financial group paid dividend per share of 6.55 sen on earnings per share of 8.01 sen, representing a payout ratio of about 82%.

For FY12, ECM Libra’s net profit fell by more than half to RM31.5 million or 3.84 sen per share from RM65.2 million or 8.01 sen per share a year ago. Revenue came in lower at RM178.28 million against RM218.3 million.   

The group attributed the drop in earnings to the sharp contraction in its securities business. 

However, ECM Libra noted that it managed to gain traction in growing its stockbroking business and reported a higher net brokerage of RM47.3 million for FY12  compared with RM44.2 million before.