Dubai Financial snubs Bank Islam’s share offer

By Alfean Hardy
BANK Islam Malaysia Bhd's plan to raise RM540 million from the sale of Islamic convertible redeemable non-cumulative preference shares (Islamic CRNCPS) to its shareholders hit a snag following the decision by Dubai Financial Group LLC not to take up the offer. Dubai Financial holds a 40% stake in the country's oldest Islamic bank.
BIMB Holdings Bhd holds a 51% majority stake while Lembaga Tabung Haji (Tabung Haji) holds the remaining 9%. Announced in April 2009, the exercise, which qualified as Tier-1 capital, would have allowed Bank Islam to strengthen its capital base and fund the expansion of its business.
Both BIMB and Tabung Haji have accepted the offer for their entitlements amounting to RM275.4 million and RM48.6 milllion respectively, raising the bank's total Tier-1 capital by an additional RM324 million.

In a statement yesterday, Bank Islam said Dubai Financial, which is part of the Dubai Group, had not taken up the offer to subscribe to its port ion of the Islamic CRNCPS amount ing to RM216 million.
It said it would now offer the firm's portion to BIMB and Tabung Haji on a pro-rated basis.
In a press statement late yesterday evening, Bank Islam said its major shareholder has made a commitment to subscribe to the 216 million CRNCPS rejected by Dubai Financial.

Meanwhile, in a seperate statement of its own, Dubai Group said that it was in the process of reviewing its strategic options relating to its stake in Bank Islam. "Bank Islam boasts strong attributes across the Asian banking sector, and the capital raise offer came in reflection of the successful transformation plan implemented by Bank Islam since 2006.
"However, following the reassessment of its investment strategy, Dubai Group has redirected its competitive advantage closer to home, namely the GCC and the greater Middle East region. Malaysia does remain a key market for future investments," it added.
According to Dow Jones and other reports, market speculation has been rife over the past year that Dubai Financial would sell its stake to Malayan Banking Bhd's Islamic banking subsidiary Maybank Islamic Bhd. Commenting on such speculation, Bank Islam, in its media release, said it would welcome any strategic partner who can add value to the bank's business and growth plans if and when Dubai Financial sells its stake.
However, Dubai Group has routinely dismissed such talk, stating that it remained a strategic long-term investor in Bank Islam. According to media reports in the Middle East, Dubai Group itself has been hard hit by the global financial crisis and has already cut 70% of its staff since last November.
The firm, which is owned by the ruler of Dubai, Sheikh Mohammed Rashid, via Dubai Holdings, has also indicated plans to reduce its holdings that included investments in firms like Egypt's Commercial International Bank and propery developer Mazaya Saudi.
There are also plans in the pipeline, according to the reports, of consolidating the back offices of Dubai Group and Dubai Investment Capital to reduce costs. The firm has already completed the merger of its property and business park assets into two new units.

(This story appeared in The Malaysian Reserve on Oct 2, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh) Any source