Dubai:

Gulf Finance House’s plan to increase the paid capital is meeting many objectives with one strategy.

The investment bank has used the more than 400 per cent jump in its share price last year to their advantage with plans to double the paid up share capital, that the investment bank plans to raise to $1.498 billion from the current $597 million.

“It’s a smart way, its financial engineering. They are trying ensure that you use the current situation of the company without increasing borrowing, or collecting money through convertible bonds or banks etc,” said Mohammad Ali Yasin, managing director at National Bank of Abu Dhabi Securities told Gulf News.

“There is no commitment on you to pay Dh3.5, if anything is that other party needs to accept the share value, and therefore they value the company at a higher than market price,” he added.

After the plan, GFH’s authorised capital will increase to $2.5 billion from $1.5 billion. The investment bank has set out Dh3.5 as the price of the new shares, a premium of 25 per cent over Wednesday’s closing price.

No obligation:

“Overall as the current shareholder you don’t have any obligation to subscribe, the downside is that it’s diluting you as a shareholder, but it’s a positive dilution. Although you are being diluted in terms of your percentage ownership of the company, the value is higher than the current or book price,” Yasin added.

Yasin feels that there needs to be a proper due diligence on valuation on those assets in form of financial institutions or infrastructure investments and investments assets, which they plan to buy.

“There should be retention period for the new shares, so that we don’t get an immediate impact in the market. The premium for the other 450 million shares should be set as a percentage of shares price at that time or percentage of Dh3.5 and should not be open-ended,” said Yasin.

GFH is raising their authorised capital, which means nothing to the shareholders.

The current shareholders are not obliged or committed to buy new shares.

After having subscribed to the new shares, there is nothing to bind you for not selling the shares in the market.

There needs to be retention period for new shares, some of them will have to be valued at future share price, analysts feel.