BankMuscat to issue convertible bonds first time in Oman

A new financial instrument, convertible bond, would soon be listed on the Muscat Securities Market (MSM), for the first time in Oman. According to official sources, the country's biggest commercial bank, BankMuscat, is in the process of issuing convertible bonds to nearly 11,000 shareholders of Industrial Bank of Oman (IBO) as part of the proposed merger between the two banks.

The bonds will be issued for a statutory minimum period of two years and shall automatically be converted into ordinary shares of BankMuscat. The convertible bondholders shall receive interest at the rate of 8.5 per cent per annum, payable on June 30 and December 31, each year, with the final interest payment to be paid on December 31, 2003.

The respective boards of BankMuscat and IBO have already considered and resolved to recommend a proposal of the merger between the two and the convertible bonds issue to their respective shareholders. The effective date for the merger envisaged is December 31,2001, subject to requisite approvals from the Ministry of Commerce and Industry (MOCI), the Capital Market authority (CMA) and the Central Bank of Oman (CBO). The merger shall retain the name BankMuscat.

BankMuscat's subordinated loan note - BankMuscat Bond, which carries an interest rate of 10 per cent - has already become the darling of investors on the MSM. According to the proposed merger consideration, the existing shareholders of IBO will receive a compulsorily convertible bond for each existing ordinary IBO share, having a nominal value equal to the audited book value per IBO share as at the date of the merger coming into effect. The convertible bonds will form part of the merged bank's permanent capital.

The ration will be based on the nominal value per convertible bond, as against the then weighted-average daily closing market price of BankMuscat share quoted on the Muscat Securities Market (MSM) for the three months period ending December 31, 2003.
The ordinary shares to be allotted upon conversion of the bonds on or after January 1, 2004, shall be eligible for dividends to be declared by BankMuscat for the financial year ending December 31, 2004 and thereafter. If the nominal value per convertible bond is RO1.100, and the weighted average daily closing market price of BankMuscat share for the three months period ending December 31,2003, is RO 3.300, the swap ratio will be 1:3 (i.e. three convertible bonds in exchange for one new ordinary share in BankMuscat). The proposed merger shall bring IBO the benefit of becoming part of the largest commercial bank in the country. Integrating operations and resources will lead to sustain cost savings for both banks.

The merger will bring about an increase in overall permanent capital, which shall be used by the merged bank towards future organic asset growth and absorption of acquired asset expansion. Meanwhile, the immediate effect of the proposed merger on the Earnings Per Share (EPS) of BankMuscat will be negligible. But in the medium to long-term, the enlarged capital base would permit asset growth that will have a concomitant positive effect on the future EPS, a BankMuscat official said. IBO currently provides a range of financial products and services to the industrial, service and infrastructure sectors. The bank has participated, along with an international consultancy firm and the Omani Centre for Investment Promotion and Export Development (Ociped), in promoting fast-track implementation of a range of industrial and tourism projects for the private sector in the Sultanate. IBO was established in early 1998 with a paid-up capital of RO25 million. The promoters of the bank at the time of formation include Shanfari Investment Company, Thamer bin Said Al Shanfari, Muscat Overseas Company, Ajit Khimji Group of Companies, Suhail Salim Al Mukaini Bahwan, etc.

  Back