Can Islami Bank raise Tk 20,000cr
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It also remains unclear whether foreign investors would be willing to return after witnessing a lack of good governance first-hand.
In 2017, S Alam Group took control of Islami Bank, allegedly with assistance from government agencies.
After the takeover, the health of the bank, once the most profitable private lender in the country, deteriorated severely.
By early September this year, S Alam Group, whose founder weaponised his close political ties to the ousted Awami League regime, accounted for more than half of the total loans disbursed by Islami Bank of Tk 174,000 crore.
Following the takeover, many foreign investors gradually sold their shares, leading to a significant decline in foreign ownership.
By October 2023, foreign holdings had dropped to 8.26 percent, down from 70 percent prior to the takeover.
Multilateral development finance institution Islamic Development Bank (IDB), Al-Rajhi Co, Saudi-based company Arabsas Travel and Tourist Agency, and Saudi Arabian citizens Yousuf Abdullah Al-Rajhi and Abdullah Abdul Aziz Al-Rajhi sold their entire stakes last year and left the board.
Another problem with issuing new shares that Khan pointed out is a lack of depth in the stock market, which means it may be unable to provide an amount as large as Tk 10,000 crore.
Regarding share issuance and sales, Asif Khan, chairman of EDGE Asset Management, said there were two questions: a technical matter and the issue of valuation.
“Technically, Islami Bank can raise new capital. However, the process of selling S Alam’s shares and using the proceeds to adjust defaulted loans may be more complex,” he said.
“Regarding the valuation, we don’t know what valuation investors are willing to meet until they go to investors.
“The expected valuation looks high. It can only be achieved if investors take other factors like relationship and strategic impact into consideration in addition to pure financial analysis,” he added.
Saiful Islam, president of the DSE Brokers Association of Bangladesh, said it may prove difficult to sell new shares to general investors given the state of the stock market, which has stagnated.
Over the past 14 years, the market has been unable to muster enough strength to cross its previous highest position, which it recorded in 2010 after soaring to 8,918 points.
“So, the bank should find a strategic buyer, someone who will buy the share at a pre-negotiated price,” he said.
The share issuance is likely to hurt its earnings per share, but Islam added: “The issue now should not be earnings per share, but sustainability.”
He added that it is clear from the statement of the bank’s chairman that his intentions are good, but said it was now time to provide a clear picture to existing shareholders.
He also recommended reducing lending and issuing bonds. At the same time, he advised to increase deposits by capitalising on the bank’s previous goodwill.
Last week, the bank got approval from the BSEC to raise Tk 500 crore by issuing a subordinated bond.
But Khan said the size of this bond pales in comparison to the bank’s size. He suggested the bank issue more bonds, including some perpetual bonds. Islami Bank Chairman Md Obayed Ullah Al Masud did not receive phone calls or reply to messages seeking comment.