BIB instigated the 90-day standstill agreement on 16 September as part of a response to its liquidity problems. This, combined with the challenging conditions in global capital markets, resulted in the bank reporting operating losses of $49 million for the first nine months of 2002 (MEED 27:9:02).
A crucial element in the bank’s plan to restore its financial strength is a planned rights issue. An extraordinary general meeting will be held in Bahrain on 11 December, at which the bank will seek shareholders’ approval for the issue, intended to raise $30 million-50 million to restore the bank’s capital adequacy ratio.
BIB has three outstanding medium-term syndicated loans, totalling $227.5 million, and an additional $230 million in short-term liabilities. Steering groups have been formed to represent the two types of creditors. Representatives from Arab Bank, Arab Banking Corporation, ANZ Investment Bank, DZ Bank, Emirates Bank International, JP Morgan Chase & Company and Lloyds TSB will act on behalf of medium-term syndicated lenders, while representatives from HSBC, JP Morgan Chase & Company, Bank Muscat, National Bank of Dubai, the Pension Fund Commission of Bahrain and Bahrain Telecommunications (Batelco) will represent the interests of short-term lenders.
The creditors are studying a formal proposal announced in mid-November by Credit Suisse First Boston (CSFB). BIB appointed the investment bank as its financial adviser in October. CSFB will assist in negotiations with creditors and advise the bank on how to maximise returns from a proposed asset sale. In a statement, BIB says that the payment moratorium has led to the bank being viewed as ‘a potentially distressed seller of assets, which in turn has influenced the correct fair values of certain investments at the audit date’.
Assets at BIB dropped to $492 million at the end of the third quarter, down 43 per cent since the start of the year. The decline was mainly due to BIB’s September decision to sell its corporate bond portfolio, which was done in order to alleviate immediate pressure on the bank’s liquidity position. Worsening conditions in the global market resulted in the loss from this sale exceeding the $70 million-80 million originally
As a result of its weakened financial performance in 2002, BIB took a high level of provisions in the third quarter, which exacerbated the profit loss. A total $119 million of provisions were made against losses from the bank’s US high-yield securities portfolio, and a further $51.9 million of provisions were taken in respect of private equity exposures in the UK, France and South East Asia.