BIB faces liquidity squeeze, prepares for restructuring

27 September 2002

In the face of a liquidity squeeze Bahrain International Bank (BIB)has announced plans for the sale of its entire US and European corporate bond portfolio and its intention to stage a rights issue that will be used to recapitalise the bank.

BIB expects to make a loss on the bond sale of $70 million-80 million, but will realise about $58 million which will be used to raise liquidity levels and support the bank's position in upcoming negotiations over the refinancing of its existing debt.

Interim accounts are to be issued on 30 September which will reflect the bond sale and other readjustments such as a re-evaluation of the bank's private equity portfolio. After the interims have been published, an extraordinary general meeting of shareholders will be called to discuss the proposed recapitalisation. It is expected that the rights issue will raise $50 million-60 million.

The bank's position in the debate with its creditors will be strengthened by support from its board and the Bahrain Monetary Agency (BMA - central bank). BIB's board has committed a deposit of $16 million which is expected to be converted to equity as part of the rights issue. The BMA has announced that it will contribute to the support of the bank with a $40 million secured facility.

The difficulties faced by BIB in a harsh trading environment have been reflected in negative action taken by Cyprus-based emerging market rating agency Capital Intelligence (CI). CI has downgraded BIB three times in the last five months and twice in five days in late September: the most recent downgrade saw BIB's long and short-term foreign currency ratings both lowered to C.

'It has been revealed that BIB has instigated a standstill notice with all its short-term lenders, and is requesting the bank's corporate and bank depositors to renew their obligations for a 90-day period,' says CI in a statement. 'During this time, BIB states that it would conduct refinancing negotiations with all its creditors.'

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