HSBC ups BDSI investment

On June 7, HSBC announced that it would be subscribing in full to Dar Es Salam Bank’s (BDSI) 46.9% rights issue. The “world’s local bank” will be buying 23.7 bn new BDSI shares at IQD 1 each for the equivalent of about US$ 20.3 mn. (See this link for the announcement .)

The HSBC subscription will enable BDSI to meet the Central Bank of Iraq’s June 30 deadline for all private sector banks to increase paid-in capital to IQD 100 bn. Added to BDSI’s existing capital of IQD 72 bn, HSBC’s new shares will bring the total to IQD 95.7 bn, virtually assuring that the target will be met.

This will be the first time HSBC has injected capital into BDSI since it acquired its 70.1% stake in 2005. (Subsequent capital increases all took the form of bonus share issues.) Based on BDSI’s year-end 2005 capital of IQD 25 bn, that initial investment must have been something like IQD 17 bn—only about US$ 12 mn at the then prevailing exchange rate of around IQD 1470 = US$ 1.

The banking giant’s decision to put in more money, while not unexpected, can be seen as an important vote of confidence not only for its subsidiary but also for the Iraqi banking sector as a whole. There may also be a nice profit for investors when BDSI’s shares resume trading. On an adjusted basis, BDSI was up on the first day of trading following all four of the capital increases it has done since the beginning of 2005. The average first-day gain was 17.3%.

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