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.