Jahangir Siddiqui and Company is going to increase its stake in BankIslami Pakistan by at least 7.4% in coming weeks.
According to a note sent out to members of the Karachi Stock Exchange (KSE) on Tuesday, the board of Jahangir Siddiqui and Company has decided to make a long-term equity investment of Rs749.3 million in BankIslami by purchasing 74.9 million shares from Dubai Bank PJSC at Rs10 per share.
The shareholding of Jahangir Siddiqui and Company in BankIslami was 21.2% as on June 30. The total stake of the financial conglomerate in the Islamic lender will stand at 28.7% in case the company’s shareholders approve the equity investment decision taken by the board.
Reports appeared in the press last month said that Dubai Bank PJSC was going to sell its entire stake of 144.2 million shares, which constituted 14.3% of BankIslami’s total outstanding shares.
Dubai Bank PJSC had received an offer from a consortium comprising Al-Karam Group and one Ali Hussain to purchase its shares in BankIslami.
Dubai Bank PJSC then offered Jahangir Siddiqui and Company and Ahmed Randeree of the Randeree Group a “right of first refusal” to purchase the respective portion of these shares under the Founding Shareholders Agreement.
With a stake of 25%, Dubai Bank was the largest shareholder in BankIslami until the end of 2014. It was followed by Jahangir Siddiqui and Company (21.2%), and two individuals with a stake of 9.8% each.
However, BankIslami Pakistan conducted its right shares issue that increased its shareholders’ equity to Rs9.9 billion on April 30 to meet the central bank’s capital adequacy requirements.
Dubai Bank PJSC did not apparently subscribe to the newly issued right shares. The website of BankIslami shows Dubai Bank PJSC was reduced to being the fourth largest shareholder (14.3%) as on June 30.
Apart from the offer for sale of 74.9 million shares that Dubai Bank PJSC has already made to Jahangir Siddiqui and Company, the latter has also indicated its intention to purchase another 13.1 million shares of BIPL from the Dubai-based financial institution at a price of up to Rs15 per share.
It is up to Dubai Bank PJSC if it accepts the offer of Jahangir Siddiqui and Company with respect to shares that the former has proportionately offered to other shareholders of BankIslami under the Founding Shareholders Agreement.
At the share price of Rs15, this portion of the deal will be worth Rs197.7 million. The total shareholding of Jahangir Siddiqui and Company in BankIslami will become about 30% in case Dubai Bank PJSC accepts the offer.
Jahangir Siddiqui and Company has decided to issue 20% right shares, which means 20 right shares for every 100 existing ordinary shares. These shares will be offered to all existing shareholders of the company at the par value of Rs10.
Funds generated through the right issue will be used to make the long-term equity investment in Bank Islami, the company said.
It is unclear why Dubai Bank PJSC is selling its stake in Bank Islami. According to one analyst The Express Tribune spoke to when the news of Dubai Bank PJSC’s exit emerged last month, the decision may have been triggered by the acquisition of a conventional bank by BankIslami.
The Islamic lender has recently acquired KASB Bank, a conventional bank that had faced capital adequacy issues for many years.
The share price of BankIslami came down 0.8% to Rs12.5 while the stock of Jahangir Siddiqui and Company rose 1.4% to Rs28.7 on Tuesday.
Bank Islami Pakistan had 213 branches with total equity of over Rs7 billion at the end of the first quarter of 2015, latest period for which official data is available. Its profit after tax for the January-March quarter was Rs71.2 million, down 5.6% from the same quarter of 2014.