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| At the Third AGM, a Quorum Can Be Rather Small |
BMB
“successfully” held its FY 2019 AGM on 9 April after two previous
unsuccessful tries. Minutes
here.
But just barely.
Only one shareholder holding one share
was in attendance.
That’s 0.00000025% of outstanding shares
according to the AGM Minutes.
As per Bahrain’s Commercial
Companies Law, there is no required minimum quorum for a third
meeting.
All AGM agenda items were approved.
The EGM – which is
needed to address the critical issue of continuity of BMB – failed
for lack of a quorum.
See below for the main focus of the AGM: a discussion of the implications of failure to hold an EGM on BMB's ability to legally continue as a "going concern".
As noted in an
earlier post, because AN Investments was excluded from voting in
the EGM, if their shares are excluded from the total number of BMB
shares, only 4.81% of shares would constitute a quorum for the
EGM.
As also
noted in that post, that would require AlFawares (ALF) to be present
to vote its shares because in the event that AN Investments' shares
are excluded a minimum of 4.81% of total outstanding BMB shares would
have to be present and all other shareholders own only 4.51% of BMB.
ALF was not in attendance for the EGM.
It’s
unclear what the reason is for their failure to participate.
Earlier
the Board noted that certain members of senior management and the
Vice Chairman were under investigation for an alleged fraud. None of
these individuals were directly associated with ALF.
Also, ALF’s
two directors on the Board resigned "just before" the CBB ordered that the
Board resign.
I have interpreted the timing of these events as an
early warning from the CBB to the ALF directors to exit before being
forced to resign.
In which case ALF should have nothing to fear from
attending the EGM unless it fears (a) other legal exposure of some
sort, (b) being forced to participate with new equity, or (c) the "sting" of unpleasant comments from other shareholders.
Re the first point, it
would seem that the CBB’s actions—if my assessment is
correct—indicate that ALF’s hands are “clean”, though see the
potentially troubling reference to the difficult situation with
“majority shareholders” below.
What might be the "sticking point" is ALF's own obligation to the Bank for the Installment Sale Receivable (ISR) loan which BMB has provisioned in full.
Re the second point, I don’t
think Bahraini law gives the CBB or another Bahraini authority the
power to compel a shareholder to invest additional equity.
Participation in rights issues is voluntary and rights entitlements
may be waived and in some cases traded.
And if the good sheikhs at
ALF are sensitive to criticism, they can always give a party with
thicker skin their proxy. The proxy holder can turn away questions
regarding new capital or any other matter, including the ISR, with a simple “I don’t
know”.
Given ALF’s own financial “difficulties”, their
absence seems strange as restoring value to BMB increases the assets
they need to meet their own obligations.
Given that the CBB appears
to have given ALF's directors advance warning so they could keep
their "thoubs" clean, it seems downright
ungrateful of ALF not to cooperate.
Beyond that, Kuwaiti
investors often use OPM to fund their investments as a tried and true method of limiting their downside risk.
If the investment goes bad, they hand the "keys" to the investment to the lender with a smile.
One might
therefore expect there could well be a lender holding the BMB shares as
collateral.
An institution one would hope would be motivated to see the value of
those shares preserved, or, in this case, increased from zero.
In
such a case it would seem that at a minimum that lender would demand
that ALF give it a proxy, assuming it does not already “own”
the shares through realization of its collateral.
The main focus of the meeting was a discussion of the implications of the failure to hold
the EGM this year, following a similar failure earlier.
Mr. Yusuf
Taqi a member of the Board asked the “regulators to provide
directive on this issue {continuity of the bank} given that it may
not be possible to hold at EGM in the future”.
BMB’s counsel
opined that failure to convene an EGM and take the legal steps to
maintain continuity of the Bank could lead to the bank being wound up
or placed under administration.
Mr. Isa al-Motawaj, Director of
Wholesale Banking at the CBB, noted that the CBB understands that BMB
is in an “abnormal situation’ vis-a-vis its majority
shareholders. (Note the plural in the minutes).
Is ALF included in
the phrase “majority shareholders”?
And, if so, is their
inclusion a reference to their own significant financial
difficulties?
Or is there something more here?
Or is it an
inadvertent slip? A reference to the fact that AN Investments is
owned by the three Turkish “amigos”?
Mr. al-Motawaj stated that
the CBB had evaluated that directing the bank to liquidate or be put
under administration “would not be in the best interest of the
stakeholders” particularly as there are other financial
institutions exposed to the same defaulted parties as BMB is trying
to recover funds from.
He also went on to assure the Board that they
were duly constituted and operating in line with legal requirements,
noting the importance of the asset recovery efforts underway.
He also responded to a board question about the legality of the AGM, noting that the representative of the MOIC&T had vouched for compliance wiht Bahrain's Commercial Companies Law, even though only one share was in attendance.
The CBB has gone on the record that it is willing to give BMB some leeway given its unique situation.
That being said, even with a successful EGM, BMB’s future is bleak.
Recovery is highly unlikely to be in full.
Additional capital will be required.
Hard to see investors rushing to commit equity.
As a wholesale bank, BMB is unlikely to benefit from rescues afforded retail banks in the Kingdom.
Finally, kudos to
the one shareholder who apparently believes in exercising his or her
corporate governance responsibilities.
All markets, not just those
in the GCC, need more shareholders like this individual.
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