Warka Fat Lady Begins Warm Ups

Last weekend two stories, one in Al Hayat the other in the Abu Dhabi paper The National, confirmed that Standard Chartered is in talks to take over Warka Bank (BWAI). (There’s more on the story here.) While there have been rumors to this effect for over a year, this is the first time anything has been officially disclosed. Hayat cited Warka Bank Executive Director Mohammed al-Samarrai as saying that the merger has reached its “final stages.” A Standard Chartered official interviewed by The National was a bit more circumspect. He characterized the negotiations as “still in the early stages” and cautioned that “It’s not final until it’s absolutely final.”

It’s said that the opera isn’t over until the fat lady sings. While she hasn’t come out yet, it looks like she has already begun warming up backstage.

If the deal goes through, Standard Chartered will presumably be taking up the approximately 145 mn rights issue shares left over from Warka’s failed capital increase in early 2010. At IQD 1 per share, this would add IQD 145 mn to June 30, 2011 net equity of IQD 138 mn, bringing the total to IQD 283 mn. Share capital would increase to 250 mn, with the British bank holding a 58% stake.

In this scenario, book value per share would come to 283/250 = IQD 1.13.

Among the ISX-listed banks, Warka would become only the second to have a major international financial institution as a controlling shareholder. The first was Dar Es Salaam Bank, which is controlled by HSBC.

Dar Es Salaam trades at 7.0 times book value. The same rating for BWAI post-merger would mean the shares would reopen at 7 x 1.13 = IQD 7.92. Anyone who had bought at BWAI’s last traded price of IQD 1.26, got the 33.33% bonus, and taken up the 150% rights issue would be looking at a return of 710%. (Both original and bonus shares were eligible for the rights.)

The final act of this drama may turn out to have been well worth the price of admission.

Photo by: http://www.flickr.com/photos/aliens_ufo_proof_evidence/

9 Responses to Warka Fat Lady Begins Warm Ups

  1. Kickabuck August 22, 2011 at 4:16 pm #

    Great read Mark! Nice number crunching and thanks for the June 2011 net equity figure, financial numbers are hard to get in this marketplace. The only flaw I see is the return price…The ISX currently limits stocks to a 50% +/- the day trade resumes following a General Assembly meeting, and only a 10% +/- daily gain thereafter. There have been stocks with a 20+ day run up on gains, hopefully Warka will be one of them. Your work is greatly appreciated, KB

  2. DeWeaver August 22, 2011 at 7:50 pm #

    Thanks, KB. You’re right of course. We can’t have 700% in a single day. But we certainly could get there over time…

  3. MEALTICKET August 22, 2011 at 10:28 pm #

    I fell pretty confident in the deal going thru. My question is thru all the hype on the dinar removing zero why hasn’t the CBI put anything on thier website offically.

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  5. Stew August 23, 2011 at 9:16 am #

    Becasue it’s still just a plan. The plan is now complete and has been submitted for appoval. It will probably not be posted on the CBI site until they make the official announcmnt that on (pick a date) the redenomination will begin and you will have (pick a number of months) to exchange old dinar for new dinar.
    The CBI has to be ecstatic that dinar pumpers are convincing people that this “delete 3 zero plan” means a big RV so they will hold dinar to last minute.
    If the truth were told to these people the CBI would have to deal with the flood of dinar coming back into the country from people bailing out of this scam.

  6. buck August 23, 2011 at 12:23 pm #

    I was not to worried that this would happen, it has been slow progress, but this is how most things in Iraq go.

    My guess the exchange will happen over no more than six months. I think the shorter time will allow in country currency to be changed out. But any out of country currency that does not come back in is money in the bank for the CBI, so I doubt if there will be any long draw out time frame for this. JMO

  7. John Arthur August 24, 2011 at 5:35 am #

    I think this deal with Standard Chartered Bank and Warka Bank is one of the best i’ve seen for a long time given the economic dynamics in Iraq at this time. The future looks very rewarding for SCB. Investing in this new entity seems like a very stable option.

  8. peter August 25, 2011 at 8:38 am #

    Well Mark, I do want to thank you for tipping me off about the staggering potential laying within the ISX last October.Although the trajectory has not yet happened as hoped,it has certainly been a nice upward ride so far.The kicker comes with these rights issues and bonus shares.I got a 20% bonus 20% rights issue with BNOR,I had calculated about 6 times return on my money when this stock re opens again,not to mention potential appreciation.I’m feeling the real move will come after the currency and the security issues are behind them.Like to the tune 100% annualized ..OR MORE…This makes it a great time to get positioned.Get in before this train really leaves the station,I say..

  9. DeWeaver August 25, 2011 at 8:50 am #

    Good luck!

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