KHCB Announces OGM and EGM Dates and Agenda More Questions for the OGM and EGM

KHCB has issued the announcement that its FY 2019 OGM and EGM will be held on 25 March 2020.

If a quorum is not reached, the second meeting will be held 1 April. 

If a third meeting is required, the date is 8 April.

Time for shareholders to take another look at AA’s earlier post with questions for KHCB’s Board and Management.

This post adds some new questions on the proposed meeting agendas.

Ordinary General Meeting

1. Item 10 Authorize Board to appoint a “market maker” who will use up to 3% of GFH’s shares. 
2. Item 11 Authorize the Board to take necessary steps to delist from the DFM.

It’s pretty well known that as a general rule, the BSE has liquidity issues so appointing a market maker makes sense.

Shareholders, however, should make certain that “market making” doesn’t become a cover for costly transactions designed to prop up the share price as is the case at GFH. 

A cautionary tale here.

KHCB’s shareholding is concentrated: four shareholders hold just over 75% of shares and would likely have to trade their shares in “off market” transactions (BSE Special Order Market). 

What then is the appropriate amount of Treasury Shares that the market maker needs to provide liquidity to retail shareholders?

Extra-ordinary General Meeting

1. Item 2- Approve capitalization of losses via a reduction in paid-in-capital to BHD89,211,948 from BHD105,000,000.
2. Item 3: Approve issuance of Sukuk in an amount up to USD 200 million as Additional Tier 1 Capital.

Shareholders should probe on why the amount being raised is roughly 5 times the BHD 15 million capital shortfall. 

Is this a sign of an extremely serious problem at KHCB?  Recall that as of FYE 2019 the CAR was a respectable 16.5%  

Or is KHCB planning a major acquisition?

If fully issued, the impact on existing shareholders ability to receive dividends and the market price of shares is going to be significantly adverse because given its size and required tenor to quality as AT1 capital, this is going to be a very costly instrument.  

There may be very little left of net income for ordinary shareholders.

Given the pattern and concentration of shareholding, retail investors are going to have no real say in the outcome, unless they can persuade representatives of the Bahraini authorities that their rights are being ignored. 

However, GFH shareholders may have more ability to influence things because GFH has more diverse shareholding. That is, there are not one or two shareholders who control a majority of the shares.