Did Rafidain rumors ruin record rights issue?

On March 10, the Central Bank of Iraq (CBI) announced that the privately-owned Iraqi banks will be required to increase capital to ID 250 bn (USD 213 mn) over the next three years.  Each bank will have to reach an initial capital target of ID 100 bn by the end of the first year and get to ID 150 bn by the end of the second.

Warka Bank for Investment (BWAI), the largest of the listed banks by assets, was the first to respond to the new policy.  The bank capitalized retained earnings through a bonus share issue (one new share for every three old), thereby increasing its existing ID 75 bn in share capital to the CBI’s initial ID 100 bn target.  In addition to this, it also announced a rights issue, with 1.5 new shares offered at ID 1.00 for each post-bonus share.  If fully subscribed, this offering would immediately take the bank’s capital to the CBI’s three-year ID 250 bn target.  The subscription period ended on May 16.

At ID 150 bn (USD 128 mn), this was easily the biggest rights issue in the history of the Iraqi market.  It was equivalent to approximately 5% of total market capitalization and something like half a year’s worth of trading for an exchange that typically only sees the equivalent of about USD 1 mn in daily turnover.

The chairman held 60% of the existing shares and presumably had buyers lined up for any rights shares he didn’t want to subscribe for personally.  That left only ID 60 bn (USD 51 mn) to be raised directly from minority shareholders.  Even this, however, may have been more than the market could absorb.  While there has yet to be an official announcement of the results, rumor has it that most of the minority shareholder rights were not taken up.

Perhaps an even bigger problem than the sheer size of the offering was the US$ 360 million embezzlement case that came to light at Rafidain Bank just as the subscription period was ending.  (Rafidain is Iraq’s largest state-owned bank.)  Three Rafidain managers and the manager of Basra Bank were arrested and, according to the Iraqi paper The Citizen (Al Mowaten), there were also rumors that Warka was involved.  These rumors now appear to have been false—possibly fabrications by the bank’s rivals (as the chairman has alleged).  But as far as the rights issue is concerned the damage may have already been done.

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