Thursday, August 19, 2010

Investcorp to De-List London GDRs

Today Investcorp announced on the Bahrain Stock Exchange that it intended to de-list its London GDRs citing as a reason:
In the period since the Secondary Listing of the GDRs, there have been significant changes in financial markets and the pattern of trading shares. The volume of GDRs traded on the London Stock Exchange over the last 12 months has been minimal and Investcorp does not believe it is cost effective to maintain the Standard Listing on the London Stock Exchange.

Zawya Dow Jones quoted an Investcorp spokesman who noted:
"While Investcorp continues to have a wide range of international shareholders, in changed market conditions the secondary GDR listing in London simply no longer adds value in terms of additional liquidity or research following," a spokesman for Investcorp told Zawya Dow Jones Thursday.
A review of the periodic reports of the Bahrain Stock Exchange reveal the following "extensive" trading in the shares of Investcorp on the BSE:
  1. 2009 Annual Trading Bulletin:  For the entire year, there were just 2 transactions for 548 shares representing 0.069% of the outstanding shares of Investcorp.  (Investcorp has 800,000 outstanding shares of common stock). The total for both transactions  was BD307,529, roughly US$814,952. By contrast in 2008, a total of 1,431 shares (0.179% of outstanding common shares) were traded (30 transactions) for BD1,462,491 (US$3,875,601) and in 2007, a total of 5,905 shares (0.738% of common shares) (32 transactions) for a total of BD5,509,677 (US$14,600,644). 
  2. 1Q10 Quarterly Trading Bulletin: 1 transaction for 550 shares in an amount of BD308,651, roughly US$817,925).
  3. 2Q10 Quarterly Trading Bulletin:  No trades at all.
  4. July 2010 Monthly Report (the latest on the BSE):  No trades.
  5. To be clear none of the above constitute trading even 1% of  Investcorp's shares.  This pattern of light trading is to be crystal clear not just an issue with the shares of Investcorp but is pretty widespread on the BSE, which is why Investcorp devised its GDR program back in 2006.
So, I find it a bit hard to take this story at face value. Certainly Investcorp is not in dire financial straits and therefore does not need to cut expenses at the cost of reducing liquidity for its shareholders.  Is the problem one of the market price.  If the shares trade on the LSE more frequently, they may drift lower.  Liquidity can work two ways with stock prices.

Here's a link to the Investcorp GDR page at the LSE.

A few interesting other items:

In April this year, Investcorp announced it had signed a deal with two holders of Investcorp GDRs to buy them at US$5.00 per share.  In case you're wondering that's about US$0.24 over the offer price announced today, but then markets are down since April.  Interesting that having had a problem raising common equity not so long ago that Investcorp would be buying back common equity.  Wouldn't it make more sense to buy back expensive preferred stock?

If you recall, Investcorp has a special approval from the Central Bank of Bahrain to hold up to 40% of its outstanding shares as Treasury Shares.  And if not, it's outlined on page 28 in Investcorp's 2009 Audited Financials.  That is, just coincidentally, the free float on Investcorp's shares which you'll see outlined on the same page.

I wanted to check what level of Treasury Shares that Investcorp was holding but couldn't immediately find their Quarterly financial reports on their website.  Can anyone out there help me?


laocowboy2 said...

I may be wrong but i would suspect that the low trading volume in Investcorp shares may reflect the original distribution (third party shares) and (I would guess) the significant ownership by board and management. In the early days one of Investcorp's best ideas was to carefully choose whom to bring in as shareholders. They tended to be from the richest families in the Gulf - and then provided the source of end buyers for assets that Investcorp bought such as Tiffany's (business kept - real estate sold on to investors). One that I knew once remarked "I have had my original investment back three times over so I no longer watch this investment".

On another note, the last year or so may have been tough for Investcorp but I still believe they will still be around for the next upturn.

Abu 'Arqala said...


Thanks yours.

Well, IC's free float (those shares not owned by core shareholders - the group you describe - and management) is 38% roughly.

The low trading in IC's shares is explained by:
(1) the BSE listing. There is pretty limited liquidity on this exchange. A glance at one of the monthly reports or quarterly trading reports will evidence just how small. Following are totals for the entire market trading: 1Q10 BD44 million. 2Q10 BD26 million. By comparison 1Q07 BD 41 million. 2Q07 92 million. For the latter Al Ahli United and GFH were roughly 41% of the volume. IF we take 2Q07, the average is roughly US3.7 mm per day (22 day trading month)for the entire market.

(2) Stock Price - In even more rough numbers, IC was selling for about US$2,400 per share in 2007 and now about US$1,500 per share.

(3) Size of free float.

The reason IC listed on the LSE was to go to a more liquid market. Also GDRs were structured to be a fraction of shares to reduce the trade ticket US$ "size".

Abu 'Arqala said...


Not unexpected;u. like all firms they've had their share of successes and "disappointmens". I know some investors who have had the opposite experience than the one you cited.

As to the potential for longevity, , IC has some strong advantages: (1) a professional staff. (2) a well established franchise than has weathered some storms, (3) a fairly decent reputation, (4) the right connections/support in Bahrain (5) as a consequence of #4 (though not solely) the accommodation of their regulator when needed and the understanding of their auditor.

And I expect they will re around for quite a while. But, after the rather large loss not so long ago, Nemir was unable to raise any common equity to repair the balance sheet - despite repeated and intense prolonged regional trips to existing shareholders and potential new ones including SWFs and ruling families in the Gulf. As a result, he had to sell some very expensive preferred stock.

Abu 'Arqala said...


What's really interesting here is why IC is delisting from the LSE.

And accepting that their shares will have even more limited liquidity than before.

Is the cost of listing that onerous? For such a rich and large firm as IC.