Warka’s Good News is Bad News

The Warka Bank shareholders meeting originally scheduled for October 6 was held last Wednesday (Oct 12). From what I have heard from various sources, there was some good news and some bad news.

The good news is that the bank will be getting an IQD 100 bn loan from the Central Bank of Iraq (CBI). This will make it possible for the Registrar and the Securities Commission to allow BWAI to resume trading.

The Registrar’s approval is necessary because it has a lien on the shares. As long as this is in place, transfer of ownership is blocked. The existence of this lien was made public in a recent communication from the CBI posted on the Iraq Stock Exchange (ISX) website. The central bank, in response to a question from the ISX regarding Warka’s status, stated that the Registrar had blocked trading in the shares but did not say why.

Normally a lien might be put on someone’s property if title was in question or if the property had been posted as collateral. It’s hard to see what the rationale could be in this case. Why freeze the assets of all the minority shareholders?

The bad news is the same as the good news: Warka will be getting IQD 100 bn from the CBI. Evidently the potential deal with Standard Chartered, which would presumably have seen the British bank taking up almost IQD 150 bn in rights issue shares, is not going to be finalized in the near future. (There’s more on the Standard Chartered story here.)

My earlier expectation of a big jump in BWAI’s share price on the resumption of trading now seems likely to be disappointed.

8 Responses to Warka’s Good News is Bad News

  1. Julian October 20, 2011 at 8:51 am #

    Dr. DeWeaver, I’m sure many Warka Bank Shareholders are very concerned about the value and liquidity of their shares because of the lien. What about shares purchased (of other companies available in the ISX) through the Warka Brokerage Service? Would these shares, purchased through Warka Brokerage, be included in the lien? Do you think this situation will scare off Standard Chartered Bank, or do you think the deal will eventually be sealed? I do want to continue working with Warka Bank and with Warka Brokerage, but I am purchasing shares through another bank’s brokerage service until this situation is clear and resolved.

  2. Manny October 20, 2011 at 2:05 pm #

    Dr. DeWeaver, thank you for covering this story.

    Based on the delicate financial situation of Warka bank and the adverse relationship between the Bank and the CBI in the past, it is very surprising that all of a sudden the CBI approves a loan of this size for a Bank having liquidity problems that can’t even trade its shares in the ISX.

    I was wondering if a third party such as Standard Chartered is providing collateral guarantees for the loan in order to remove the lien and clear the way for an eventual merger. Thank you in advance for your comments.

  3. DeWeaver October 20, 2011 at 2:57 pm #

    Julian: I don’t see why shares purchased through the brokerage should be included in the lien. However there was an announcement a while ago stating that the ISC had ordered Warka’s brokerage subsidiary to stop its operations in the market effective July 26. (There’s more on that story here.) This was because Warka’s shareholding in the brokerage had been seized by the Ministry of Trade.

    I don’t see Standard Chartered being scared off because they will have known all along what the problems were. But whether or not the deal will take place is now anybody’s guess. — Mark

  4. DeWeaver October 20, 2011 at 3:07 pm #

    Manny: My guess is that the CBI had to give Warka this loan so that Warka’s depositors (e.g. Asiacell) could get their money back. If Standard Chartered took over the bank this wouldn’t be necessary. Standard Chartered’s capital injection would be enough to resolve the bank’s liquidity issues.

  5. peter October 20, 2011 at 7:10 pm #

    Hi Mark ! I trust you are well..I’m not sure about my measly 20k in Warka,but i sure am happy with with the ISX and rights issue performance..Thanks for the hot tip..

  6. DeWeaver October 20, 2011 at 7:58 pm #

    Thanks, Peter. Yes despite the dog’s breakfast at Warka things seem to be looking up.

  7. Kickabuck November 1, 2011 at 12:20 am #

    With Warka being delisted from the ISX on 10/30, what do you see happening with the bank going forward?

  8. DeWeaver November 1, 2011 at 4:09 pm #

    Kickabuck: I think we should view the ISX decision as confirmation that whatever deal there might have been with Standard Chartered has fallen through. Without a buyer, I imagine Warka will continue to limp along as a ward of the central bank, perhaps eventually being nationalized when it fails to meet the 2012 and 2013 capital adequacy targets.