New Banks See Investment opportunies
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FistFull of Dollars
FOCUS: Mideast Banks Eye New Opportunities In Iraq
By Simeon Kerr and the Baghdad Bureau Of DOW JONES NEWSWIRES
Regional investors are rushing in to set up commercial and investment banks in the uncertain business climate of Iraq, betting on an economic recovery despite the gloomy security situation.
Groups of Iraqi investors are teaming up with outsiders to form new banks, as well as partnering with existing Iraqi establishments, in a bid to create well-capitalized banks free of the debt burden weighing on the state-owned institutions of Saddam Hussein's rule.
The latest bank to join this counterintuitive gold rush is a $32 million Saudi-Iraqi joint venture between Iraq's Al Khair Financial Investment Co. and Mansour Almalek Holding Co. of Saudi Arabia, tentatively-titled Saudi-Iraqi Bank.
Another bank under formation is TransIraq, a commercial and investment bank led by Dubai's Daman Asset Management.
"When you have a development situation, banking gets in at a very early stage," Daman's managing director, Shehab Gergash, told Dow Jones Newswires. "Banking here is independent of the security situation. We have confidence in the future of the economy."
The Central Bank of Iraq has so far issued licenses for more than 20 banks, most of which are seeking to set up joint ventures with Iraqi banks, said Mudher Kasim, the Central Bank of Iraq's director-general of statistics and research.
The central bank is currently looking at 10 more applications for new banks, he said in an interview.
Among the newly licensed banks that have already started operations are the Kurdistan Union Bank, which has branches in Suleymaniya and Baghdad, said Lubna Anwar Abdul Saheb, chief executive of Baghdad-based Al Waha Stock Brokerage House. Others include Dijla wal Furat (Tigris and Euphrates) Bank, Al Mansour, Ashur and Al Shemal, among others.
"It is the best time for foreign businessmen to invest their money in Iraq at this time when the prices of shares are very cheap and are expected to increase quickly", Abdul Saheb said.
Lebanon's Bank Audi is also teaming up with Iraqi investors to form Al Mashreq bank, industry sources say.
Gergash's planned bank, TransIraq, like all the other new ventures, has to raise at least 10% of its capital from an initial public offering on the newly formed Iraq Stock Exchange.
Iraq's IPOs - almost all of them for banks - are doing a brisk trade, say investors. Most are oversubscribed eight to 10 times, though some by as much as 20 times.
The IPOs tend to raise about 15-20% of these banks' capital, which tends to weigh in at around $35 million-$55 million, says Gergash.
All banks, including the private-sector banks that emerged under Saddam's rule in the 1990s, have to raise their capitalization to 50 billion Iraqi dinars ($36 million).
Some foreign investors are merely boosting the capitalization of these existing banks.
Late last year, Bahrain's United Gulf Bank (UGB.BH) and Kuwait's Global Investment House (GLOB.KW) and Kuwait Projects Co. invested in Iraq's Bank of Baghdad, raising its capital to over the mandated ID50 billion.
Bahrain-based Ahli United Bank BSC (AUB.BH) in December acquired a 49% stake in the Commercial Bank of Iraq, boosting the Iraqi bank's capital base to $43.7 million from just $9.6 million, AUB said without giving further details on the transaction.
AUB cited the tremendous economic potential for rebuilding Iraq after years of economic isolation, which will need considerable banking support, it said.
Daman's Gergash said he initially planned to raise the ID50 billion capital needed for TransIraq in two tranches: with ID25 billion paid upfront and the second tranche coming within two years.
"But we had such demand that we went ahead and raised the full amount," said Gergash, who estimated that the planning process for entry into the Iraqi banking sector takes around 12 to 18 months.
A person close to Saudi Arabia's Mansour Almalek Holding Co., which will own slightly less than half of the shares of the Saudi-Iraqi bank, declined to comment in detail on the new bank, saying an announcement would be made once the central bank license is processed.
But he remained upbeat on Iraq's potential. "We have full confidence in the future of Iraq and plan more investments there," the person said.
The Iraqi partner, Al Khair, will hold $10 million of the bank's shares, with the rest to be issued to the public, he added.
The Central Bank of Iraq issued last year a new law allowing foreign banks to acquire unlimited shares in private Iraqi banks.
Since the fall of Saddam Hussein's government in April 2003, the central bank has awarded a number of licenses to Arab and international banks to operate in Iraq.
HSBC Holdings PLC (HBC), Standard Chartered PLC (STAN.LN) and the National Bank of Kuwait (NBK.KW) were the first three foreign banks to win licenses in 2003.
HSBC in March took a 70% shareholding in Dar el-Salaam Bank, boosting the management team already in place at the Baghdad-based bank, which is one of the most popular stocks on the Iraq Stock Exchange.
Standard Chartered Bank has yet to act on its license, which will elapse in February unless the bank can secure an extension from the central bank.
"We have yet to decide - we have no definite opinion," said Stuart Horsewood, the bank's Dubai-based country manager for Iraq.
Arab Bank PLC (ARBK.AJ), Arab Banking Corp. (ABC.BH), Iran's Bank Melli, the Agricultural Bank of Iran and the Agricultural Bank of Turkey have also won licenses.
HSBC and the National Bank of Kuwait have also signed contracts to take stakes in private Iraqi banks.
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