Bahrain-based Ithmaar Bank aims to increase capital by $400m by selling shares to existing shareholders above their current market price and selling a mandatory convertible Islamic bond (sukuk).
The bank is looking to strengthen its balance sheet and fund expansion by raising up to $200m by selling shares at $0.25 between 16 March and 25 March. They are currently trading at $0.210.
These strategies are part of Ithmaar’s recapitalisation plans after posting a $235m loss for 2009 due to bad loans and lower asset valuations.
Industry insiders have said the capital increase could be difficult given the current low trading on regional debt capital markets in light of the prevailing financial crisis and the Dubai World restructuring.
“The capital and sukuk markets are very challenging right now, and the bank doesn’t have solid operations, so I think investors could be a little reluctant towards the sale,” says Ghazali Inam, global head of corporate finance at Arab Bank.
Ithmaar also plans to convert itself into a retail bank by integrating its fully-owned Shamil Bank, a Bahraini-based retail bank.
“There are a lot of banks who have primarily wholesale operations in this market that are shifting their focus to retail because the inter-bank market has dried up,” says Inam.
“But this means that retail competition and therefore retail pricing is going to increase. Unless they have something which differentiates them, I think it’s going to be very challenging,” he adds.