Monday, August 23, 2010

Gulf Finance House - Esam Janahi Appointed Executive Chairman More Details on Capital Raising

GFH announced on the BSE today that:
  1. Esam Janahi had been appointed Executive Chairman meaning that he would have a role in management presumably superior to that of Ted Pretty, Group General Manager.  (The CBB's Rulebook #2 (Islamic Banks) Module High Level Controls (Module HC) Section HC-1.3.10 expresses a preference that the Chairman be non executive.)
  2. "The Board of GFH has also resolved, subject to relevant regulatory and shareholder approvals, to seek a further re-capitalization of GFH by way of issuing equity linked convertible murabahas or similar instruments to raise up to US$300m. Such money will be used solely for acquisitions and growth initiatives. Further details will be made available to the market shortly."
  3. Deutsche Bank had been appointed as GFH's "restructuring advisor".  
What's interesting here is that the capital raising does not appear to involve a Rights Offering but rather the offer of convertible securities similar to the one that Deutsche Bank raised earlier.  In which case keep your eyes open for possible discounted instruments as the DB issue was.  With all the implications for leveraged dilution of existing shareholders.  Presumably, the Board has determined that there is insufficient appetite for a straight common equity offer?  Also the comments about the "controls" are designed to reassure potential investors that the new issues won't be used solely for debt repayment, but rather for "growth". 

It's also not clear precisely what DB's role is.  Is GFH seeking to restructure its existing debts?   Or is DB going to focus on the capital raising exercise?  A combination of both?

In commenting on Esam's appointment Ted Pretty said many flattering things about the new Executive Chairman, as you might have expected.  One comment though does stand out:
We now need to aggressively pursue new business in new markets and Esam has an enviable track record in leading such initiatives.
If I'm not mistaken, it was Esam's prior initiatives that led to GFH's current predicament.  Unless of course one believes that the global (lower case "g" please) financial crisis is the sole culprit here.

8 comments:

Laocowboy 2 said...

Rumour has it that the powers that be in Bahrain required that EJ do a Captain Edward Smith in respect of GFH. If you cannot jump ship I suppose you might as well lend a hand on the pumps.

Abu 'Arqala said...

LC2

Thanks.

But are you sure it's not a Raoul de Beaudean?

I'm sure that's what EJ thinks.

Laocowboy2 said...

Had to Google that one. I fear more a Smith however. But couldn't resist the final line of the Time article.

"But it belonged also in rich measure to Andrea Doria, badly stricken but slow to go down".

Abu 'Arqala said...

LC2

While in Melville's tale the Great White Whale destroys the Pequod, I think that the story of Yunus might be more appropriate.

Most apt not only geographically (for at least two reasons) but for other reasons as well.

Anonymous said...

First I would like to start by saying that my friends and I admire your writing and coverage of regional topics.

I had some info flowing into my direction regarding the new capital increase. rumor has it:

1. Out of USD 300 million USD the executive chairman of GFH would be committing somewhere between 50-200 Million Dollars in order to shore up confidence and attract investors to the remaining USD 100 million. There is a lot of bad taste because of the last right's issue since GFH took the money and paid lenders USD 200 Million during the beginning of 2010.

2. There is going to be an exit clause for all those who participate in the capital increase in which investors are guaranteed by the executive chairman of GFH that he would buy them out should the prices not rise in a given time horizon.

Food for thought I guess?

Abu 'Arqala said...

Anonymous

Sorry for the belated response.

Well, you and your friends are to be commended by your clearly manifest good sense and taste. Thank you.

It seems that having made a fortune out of GFH in several ways, the Executive Chairman plow some of his money into its salvation.

My understanding though - based on GFH's press release and it's hard to doubt their word - is that the plan is to issue convertible instruments linked to specific projects. And not straight equity.

As to a guarantee from the Executive Chairman to equity holders, that might be a bit difficult. It's an age old problem that lenders and others face. How does one know the true state of the finances of an individual? That all liabilities are recorded? As well as the value of assets? I would think absent written support (an SBLC or guarantee) from a reputable financial institutions this would be a hard sell.

Though I'd note there may be good reason to question that. While I may have "laughed" this firm and two other "major" investment firms out of our regional investment/credit committee, there was clearly market acceptance of all three for rather substantial sums. And one of the firms even managed to raise US$300 million in new equity in 2009!

Anonymous said...

Somebody I know in gfh says that EJ has now smelt money - new capital. He's rubbing his hands in glee. this is the real reason behind the EC-ship. In any case, he always had his buddies running the show around ted pretty - the 'new' deputy ceo, the cio ...

Abu 'Arqala said...

Anonymous

Thanks.

I've got comment moderation on posts over 1 week old. So that's why your comment didn't show right away.

Any idea where the "new money" is coming from?