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.
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