Warka’s moment of truth

On January 19, Warka Bank (BWAI) will hold a general assembly meeting to “discuss the capital increase in accordance with Article 55/1 and elect a new board of directors.” At last, it seems, there may be some light at the end of the tunnel for the bank’s minority shareholders.

The “capital increase in accordance with Article 55/1” presumably refers to the rights issue Warka originally announced last January. Having capitalized retained earnings through a bonus share issue (one new share for every three old) to increase its original ID 75 bn in share capital to ID 100 bn, the bank offered 1.5 new shares at ID 1.00 for each post-bonus share. (Article 55/1 is the section of the Iraqi Companies Law allowing for “issuing new shares whose value is paid in cash.”)

BWAI was suspended from trading in early January and hasn’t traded since. The subscription period ended on May 16, apparently with almost none of the 150 bn new shares taken up (including the chairman’s) and two subsequent public offerings fared no better, leaving investors to wonder why such a huge capital increase should have been attempted in the first place. In June, the Iraq Securities Commission added to the mystery by requiring the bank to reaudit its 2009 financials. In an announcement dated June 6, the ISC claimed to have found “abnormal figures” in the accounts and requested the company to replace the auditor and redo them.

This turned out to be something of a red herring, however. While it seemed possible that Warka might turn out to be severely undercapitalized, it submitted revised financials a few months later showing no change to year-end 2009 shareholders’ equity and upward adjustments in total assets and liabilities. Apparently everything was fine after all. In a notice dated Sept 30 the Commission stated that “the information and amendments undertaken by the bank’s Board of Directors are considered an acceptable response.”

At that point, you might have thought the way was clear for the leftover rights issue shares to be cancelled and the stock to resume trading. Yet the suspension continued with, as usual, no explanation from the stock exchange.

Which brings us to the upcoming general assembly meeting. Is it possible, as rumor has it, that Warka has finally found a buyer? Or are they perhaps meeting to approve the cancellation of the unsubscribed shares or even to approve another attempt to raise money from existing shareholders? If a new investor (presumably a foreign bank given the amount involved) is buying all of the unsubscribed shares, it will replace the chairman as the majority shareholder. Could this be why electing a new board is also on the agenda?

I, for one, will be awaiting Warka’s moment of truth with bated breath.

15 Responses to Warka’s moment of truth

  1. EMMET January 15, 2011 at 8:51 am #

    This will be very interesting. Mark I’m shock to see this hit the blog here. Hopfully Warka isn’t in trouble. Afterall they are one of the banks giving crazy interest rates. Intereting we have not heard more from banks in Iraq that have already partnered like Dar es Salam W/ HSBC.

  2. DeWeaver January 15, 2011 at 2:18 pm #

    My guess is that depositors should be OK in any event. It’s the shareholders that need to worry most.

  3. emmett January 15, 2011 at 3:23 pm #

    I would bet a major partner is coming. Just a bet…I can not see bankruptcy among Al Warka. They opened banks on US bases.Go Warka

  4. unknown January 15, 2011 at 8:18 pm #

    Dr. Mark,

    Can you provide more detail on the September 30 Notice from he ISC that states that nothing is wrong with their 2009 year-end financials?

    On Octobre 14, the ISX site published a notice from the ISC with a decision on the Warka issue: The revised financial report submitted by Warka Bank is not a fair and accurate representation of the bank’s financial position. The action plan required is that Warka resubmit its financial report once again.

  5. peter January 16, 2011 at 4:30 pm #

    Good detective work Mark ! Thanks.The CEO over at Rabee emailed me a response 4 weeks ago that he felt a big partner was coming in and they would probably be able to trade again soon.I asked if it was Citi bank, he said he had heard that..Just passing it along..take care..
    Actually Emmet their interest rates are no higher than others of the currency in Iraq I’ve checked.

  6. DeWeaver January 17, 2011 at 9:54 am #

    Hi Saleh:

    Yes, I’m looking at that same ISC notice that was on the ISX site on Oct 14. In the translation I have the part you’re citing is in a section headed “Decision 8/4/2010.” This section is followed by another section that begins with:

    Based on the foregoing, the Commission has reviewed the report and information presented by the bank, and has decided as follows:

    1. The information and amendments undertaken by the bank’s Board of Directors is considered an acceptable response to the Commission’s Decision number 4/6/2010 dated 5/31/2010. They are essential amendments to the bank’s previously-presented accounts and must be disclosed to shareholders and investors as soon as possible.

    My understanding is that the first part (where it says the report is not a fair and accurate representation of the bank’s financial position) is a recap of an earlier decision, to which the bank has, as of the Sept 30 date of this ISC decsion, made an “acceptable response.”

  7. emmett January 17, 2011 at 10:23 am #

    Since boots were on the ground in Iraq it was urban legend that foreign banks were working under Iraqi banks in pilot parternships. After US state dept trained Iraqis on their electronic stock market. Citi group partnership w/ Al Warka would not surprise me.

    Mark what would you guess the out would be on the Al Warka stock if there was a Citi group?

  8. emmett January 17, 2011 at 10:24 am #

    Typo… What would be the outcome on the shares on a Citi group partnership with Al Warka?

  9. DeWeaver January 17, 2011 at 4:00 pm #

    Hi Emmett:

    I’m saving that question for my next post!

  10. emmett January 17, 2011 at 6:36 pm #

    Mark,

    All this news comes as Kuwait Amir grants KD 1,000 for every citizen on nat”l celebrations occasion

    KUWAIT, His Highness the Amir Sheikh Sabah Al-Ahmad Al-Sabah orders an Amiri grant of KD 1,000 (USD 3,559) for every Kuwaiti citizen including those born until February 1, 2011, a senior government official said Sunday.

    Minister o State for Cabinet Affairs Roudhan Al-Roudhan said Sheikh Sabah ordered the grant on the occasion of the 50th independence anniversary, 20th liberation anniversary and 5th anniversary of Sheikh Sabah’s assumption of office, due next month.

    Furthermor, Al-Roudhan said food ration would be offered for free between February 1, 2011 and March 31, 2012.

    http://www.kuna.net.kw/NewsAgenciesP…86&Language=en

    And
    Eurozone Finance Ministers to meet amid debt crisis …Monday, Jan. 17th
    http://www.channelnewsasia.com/stori…105012/1/.html

  11. emmett January 17, 2011 at 6:39 pm #

    Mark,

    I guess we will know the fate of Al Warka’s investors by this Friday. Be reminded. Al Warka has well tender relationship with the US ARMY… Afterall they are on many US bases..

  12. EMMETT January 18, 2011 at 2:56 pm #

    Mark are you on facebook?

  13. DeWeaver January 18, 2011 at 3:28 pm #

    No, haven’t gotten around to it yet

  14. Saleh January 19, 2011 at 5:54 pm #

    thanks for the clarification

  15. […] the unsubscribed shares from Warka’s failed rights issue. (There’s more on the rights issue here and here.) Its owners should also have little trouble seeing opportunity in a country that, like […]

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