BCOI “tender offer” off to a slow start

At the end of June, Al Ahli United Bank (AUB) announced that it was seeking to raise its stake in Commercial Bank of Iraq (BCOI) from 49% to 60% by purchasing 6.6 billion BCOI shares in the Iraq Stock Exchange (ISX).  The purchases are to take place over a two-month period starting July 4, with the Bahrain-based lender paying ID 1.36 per share.

While this scheme might be thought of as a tender offer, it is actually something much simpler.  Normally the acquirer would be buying directly from the existing shareholders rather than in the market and would make its acquisition subject to a minimum number of shares being tendered.  In this case, AUB is effectively just giving the ISX-member brokers collectively a 6.6 billion-share buy order, which they may or may not completely fill.

The obvious reason for doing things this way is that Iraq’s existing securities law makes no provision for tender offers.  Conventional tender offer bids will presumably have to wait until the passage of the new “Law Regarding Securities,” which covers this subject in Article 35 of the draft version (available on the Iraq Securities Commission website, www.isc-iq.org).

If this law were already in force, it is interesting to note that AUB would be required to bid for all of the shares it does not already own.  Article 35 requires that “Any Person who acquires more than 50% of the voting power of the Publicly Held Securities of an Issuer…shall be obliged to offer to purchase all of the remaining outstanding voting Securities of the Issuer.”

So far, AUB’s acquisition appears to be off to a slow start.  From July 4 to August 5, total foreign buying on days when BCOI traded at ID 1.36 came to 2.2 billion shares.  Assuming that AUB accounted for this entire amount, half way through its two-month acquisition period it is only a third of the way to its target.  (See chart.)

Perhaps this is not entirely surprising given that ID 1.36 is below BCOI’s ID 1.38 average closing price for the thirty trading days before AUB put in its bid.

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