Ithmaar plans to raise $400m

Dubai:  Bahrain-based bank Ithmaar plans to raise $400 million (Dh1.5 billion) to boost its balance sheet and drive expansion, hoping its shareholders will back it by subscribing for shares above their market price.

The bank plans to raise up to $200 million by selling equity to existing shareholders at $0.25, compared with $0.195 where they were trading yesterday. It will also sell a mandatory convertible Islamic bond for the remainder.

Jithesh Gopi, head of research at investment bank SICO, noted that under Bahrain market rules, companies cannot price capital hikes below the par value of their stock, which in Ithmaar's case is $0.25.

"We don't know the offering details yet, but if you are a retail investor you would rather buy the stock in the market at a lower price," Gopi said.

Other market participants also said the capital raising looked difficult because of current market conditions.

"I feel it is a difficult situation to raise capital. From a market perspective, we see it as a challenge but they [Ithmaar] have a strong shareholder base, so you never know," said one fund manager from the Gulf Arab region who did not want to be named.

Recapitalising

Ithmaar has been trying to recapitalise after posting a $235 million loss for 2009 due to bad loans and lower asset valuations. It also plans to convert itself into a retail bank by integrating its fully-owned Shamil Bank, a Bahraini retail bank.

"The capital increase is to support Ithmaar's reorganisation and expansion plans after it was affected by the financial crisis," said Gopi.