LONDON, 18 February 2006 — The initial public offering (IPO) of Bahrain-based investment bank, Ithmaar Bank, which will be launched tomorrow and runs until March 12, in many respects sets a benchmark for future IPOs in the financial sector in the country if not the region.
Apart from being one of the largest IPOs in Bahrain, it is also, according to local banking sources, the first fully underwritten issue to date. For the underwriters, which include Kuwait’s Global Investment House; Qatar’s Amwal; Amraj Capital in the UAE; Bank of Bahrain and Kuwait (BBK); and the Bahrain Pension Fund, the Ithmaar IPO could not have been more opportune. Underwriters have a penchant for pushing the offer price as low as possible so that the transaction is off their books.
Ithmaar Bank is floating 150,000,000 shares at a premium to the public, the proceeds of which will be used inter alia to recapitalize the bank’s subsidiaries and affiliate companies, as well as in other investment activities. The offer is priced at $2.25 per share. This compared with the book value of Ithmaar shares at $1.65. At the same time the price/book value is $1.36, well below the average for corporate Bahrain at $3.
The IPO, first announced last December, could not have been more timely. “We are launching the IPO in the backdrop of a booming economic scenario and are confident of its robust uptake by regional investors. The appointment of strategic partners reflects our strategy to align with best-of-the-breed financial institutions to make the IPO a resounding success,” stresses Khalid Abdulla-Janahi, chairman of Ithmaar Bank and a former partner of the then PriceWaterhouse, one of the leading international auditing firms.
The Ithmaar capital-raising exercise comprises two components — the 150,000,000 share IPO to the general public; and a private placement of another 60 million shares to investors of the Geneva-based Dar Al-Maal Al-Islami (DMI) Trust, the parent of Ithmaar Bank and other subsidiaries and affiliates in the DMI Group, one of the pioneers of global Islamic banking, finance, and insurance (Takaful) headed by Prince Muhammed Al-Faisal.
The combined exercise, according to Janahi, would raise the paid up capital of Ithmaar Bank to $360 million, making it one of the largest, if not the largest capitalized investment banks in the region. The bank, incorporated in Bahrain in November 2003 and regulated by the Bahrain Monetary Agency (BMA), is seeking a primary listing on the Bahrain Stock Exchange at $2.25 per share.
Ithmaar, however, also plans to seek a secondary listing, subject to regulatory approvals, on the Kuwait Stock Exchange to further enhance its liquidity and to broaden investor participation. In this respect, it has appointed Global Investment House as Listing Adviser in Kuwait. To facilitate the $100 million private placement, Ithmaar Bank has also signed a Mudaraba agreement with Shamil Bank, the Bahrain-based affiliate of the DMI Group, whereby Ithmaar Bank will provide selected DMI investors a guaranteed allotment of shares.
Janahi said, “the Mudaraba agreement is in line with our strategy to involve our shareholders in the IPO issue. By extending this offer to select institutions and HNIs (high net worth individuals) in the region we also intend to broaden the scope of the IPO.”
Ithmaar Bank has appointed Shamil Bank as the Lead Manager and Financial Adviser for the IPO and KPMG as Co-financial Adviser. The issue is fully underwritten by Global Investment House (Global), Amwal, Abraaj Capital, BBK and Bahrain Pension Fund. Global is also a Co-manager to the IPO. Shamil Bank and BBK are the Receiving Agents for the IPO.
Janahi is bullish about the subscription to the IPO and the already overwhelming interest shown in the offer as underlined by the underwriting experience. “Given the unprecedented economic boom in the GCC and the record liquidity in the market, the timing, scale and scope of the Ithmaar Bank IPO would certainly offer optimum returns for the bank’s shareholders and benefit the investors. As such, we are delighted to have received an unprecedented interest in underwriting from institutions across the GCC. We are extremely pleased to partner with these prestigious financial institutions” adds Janahi. In 2005 Ithmaar Bank’s price to earnings (P/E) ratio stood at 9.5, well above the average of 22 for the sector in Bahrain. This optimism is shared by the lead manager and the underwriters. The IPO, says Mohamed Hussain, chief executive of Shamil Bank, is offered to investors at an attractive price that will create high shareholder value.
Dr. Farid Al-Mulla, general manager and CEO of Bank of Bahrain and Kuwait, said “the addition of the Ithmaar IPO will help enhance our existing portfolio of investment services. We are confident that the IPO will trigger a wave of investor enthusiasm in the backdrop of the high liquidity in the region. It will also contribute to the expansion of investment opportunities and in turn the economic growth of the region.”
