Iraq Business News has received information suggesting that AsiaCell is suing Warka Bank for the return of funds amounting to around 29 billion Iraqi dinars [$25 million].

According to one source, this could be enough to do serious damage to Warka.

While the full picture is still not entirely clear, we are attaching an official original announcement in Arabic, together with an un-official translation in English. Please note that this translation is given in good faith, and Iraq Business News takes no responsibility for any errors or omissions.

Please click here to download the Arabic version;

and here to download the English version.

Warka’s moment of truth last Wednesday (Jan 19) turned out to be a nonevent. It seems the general assembly meeting had to be postponed for a week due to lack of a quorum. To put it another way, the chairman, who holds 60% of the stock, didn’t show up. (See my last post for more on this GA meeting that wasn’t.)

Characteristically, both the company and the stock exchange have so far left investors completely in the dark regarding the reason for the postponement. Even the new meeting date has yet to be announced. All one can do is speculate.

One obvious possibility is that the meeting could have been postponed due to some last minute disagreement between the board and a potential buyer. On the other hand, announcing and then postponing a meeting could also be part of an attempt to “produce something from nothing,” as the Chinese say. Even in the absence of any buyers, it might be useful to create an impression that negotiations were ongoing.

Or maybe there’s a perfectly mundane explanation—perhaps the chairman just got stuck in traffic. Until Warka’s moment of truth finally arrives, it’s really anybody’s guess.

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.

Warka Bank issued a statement on Wednesday refuting the rumours (click here for more details) that it was in financial difficulty:

Dear Warka Clients,

With regard to the rumors that have been circulating against our bank by ill competitors please note that our bank is well supervised and monitored by the highest financial authority in Iraq CBI and we operate under their firm guidelines and regulations where deposits are guaranteed by the CBI.

Best regards,

Warka Bank for Investment and Finance

Speculation is rife that Iraq’s Warka Bank has collapsed, but its managing director said that it has not collapsed but has faced problems due to a recent decision of the Iraqi government to withdraw over $1.6 billion from the bank.

Our resident blogger on economic issues, Mark DeWeaver, recently reported on the mysteries of Warka’s rights issue.

The Iraqi government recently decided to withdraw its money from all private banks, leading to media reports that Warka Bank had collapsed, according to a report from AKnews.

Speaking during a press conference in Sulaimaniya, Mohammed Hussein said, “Warka Bank has not collapsed. It is just some problems we are facing which will be resolved soon and we will resume our work in a better way.”

He said the Iraqi Trade Ministry owes $250 million to the bank but has failed to return the money because of the changes in the leadership of the ministry.

On his part, Dler Mohammed, the head of Warka’s branch in Kurdistan said the Iraqi minister of finance has agreed to give a loan of around $64 million to the bank.

He added several British and Lebanese companies have also agreed to buy shares in Warkaa but did not provide the names of the companies.

Mohammed said following the government’s decision, the Iraqi Public Vehicle Company withdrew around $680 million from the bank, and citizens withdrew around $1 billion.

“During talks with officials at Kurdistan’s Ministry of Finance, they promised us to return the pensions for retired government personnel to Warka Bank,” said Mohammed.

Warka bank was established in 1999 and currently is one of the largest private banks in Iraq with 120 branches all over the country.

Al Sumaria News quotes a spokesman for the bank as saying that the bank “is supported by the Central Bank of Iraq and can not talk about bankruptcy”, and added that the rumours were an attempt by the bank’s competitors to tarnish its reputation.

(Sources: AKnews, Al Sumaria)

National Food Industries has announced that it will be issuing 100% paid up shares at the price of IQD (1 per share) for those shares purchased and owned prior to the holding of its general assembly meeting.

Shareholders trading through Warka Bank are advised to submit their authorization letters to purchase the paid up shares by September 26th.

(Source: Warka Bank)

So far two subscription periods for Warka Bank’s ID 150 bn rights issue have come and gone without any official announcement of the results.  The last date for existing shareholders to subscribe was May 16.  As most of them did not take up their rights, there was a subsequent public offering open to everyone except those eligible to participate in the first round.  These subscribers (if any) had until July 2 to get their money in.

Apparently the chairman, who holds about 60% of the shares, did not take up his own rights, which would naturally lead you to conclude that he must have had new investors lined up to invest in the public offering.  (Otherwise what would have been the point in doing such a huge capital increase in the first place?)  But if that had been the case, it seems that there should have been an announcement by now confirming that the second round shares had been taken up and revealing the identity of the new owners.

But no such announcement has been forthcoming and it now appears that the public offering is going to a final sixty-day third round.  As the stock must be suspended until the new shares are either taken up or cancelled, this would mean that BWAI would not resume trading until some time in September at the earliest.

In the meantime, however, the Iraq Securities Commission has further complicated the process by requiring the bank to reaudit its 2009 financials.  In an announcement dated June 6 (and posted on the ISX website on June 9), the ISC claimed to have found “abnormal figures” in the accounts and requested the company to replace the auditor and redo them.

All this leaves the minority shareholder with nothing but unanswered questions:  Did the chairman actually have any investors to take up the second round shares?  Will they subscribe during the third round?  Did they ever exist in the first place?  Did the ISC’s report scare them away?  Was the timing of ISC announcement, right in the midst of a public offering, a coincidence?  What will the bank’s new auditor conclude? 

And when, if ever, will the shares resume trading?

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.