27 July 2010
ISLAMIC BANK OF BRITAIN PLC
Proposed Placing, Code Waiver, Trading Update and Notice of General Meeting
- Islamic Bank of Britain to raise £20 million through a proposed placing of new ordinary shares at a price of 1 pence per share.
- Shares to be subscribed by Qatar International Islamic Bank, an existing shareholder in Islamic Bank of Britain.
- Current trading continues to be challenging.
Gerry Deegan, Managing Director at Islamic Bank of Britain, commented "Qatar International Islamic Bank was instrumental in establishing Islamic Bank of Britain as one of the first Islamic banks in the West and this capital injection demonstrates its continuing commitment. This is very good news for Islamic Bank of Britain's shareholders, staff and customers as well as for the Islamic banking sector in the UK."
Overview of the Placing
Islamic Bank of Britain PLC ("IBB", the "Company" or the "Bank") today announces that it proposes to raise £20 million before expenses by way of a placing of 2,000,000,000 new ordinary shares ("New Ordinary Shares" or "the Placing Shares"), at 1 pence ("the Issue Price") per Placing Share (the "Placing"). The net proceeds of the Placing will be used to provide the Company with sufficient regulatory capital to manage and grow its business.
The 2,000,000,000 Placing Shares are being placed with Qatar International Islamic Bank ("QIIB"), an existing shareholder. QIIB is considered by the Panel on Takeovers and Mergers ("the Panel") to be acting in concert with Qatar Islamic Insurance Company (Q.S.C) ('QIIC'), HE Sheikh Thani Bin Abdulla Bin Thani Jasim Al Thani ("Sheikh Thani") and Mohsen Moustafa (together, the "Concert Party").
Following the Placing, the Concert Party will own 88.20 per cent. of the enlarged share capital of the Company of which QIIB will own 80.95 per cent. The Placing is therefore conditional upon, inter alia, the approval by the shareholders who are independent of the Concert Party ("Independent Shareholders") of a waiver from the obligations of Rule 9 of the Takeover Code to make a general offer for the issued share capital of the Company that the Concert Party does not already own ("the Rule 9 Waiver", together with the Placing "the Proposals").
The Company is also seeking appropriate authorities to allot shares and disapply pre-emption rights in order to facilitate the Placing and to provide future headroom.
Further details can be found in the circular being posted to shareholders today.
On 24 March 2010 Islamic Bank of Britain announced a pre and post-tax loss for the year ended 31 December 2009 of £9.5m (2008: loss of £5.9m). The loss resulted from a difficult and challenging market in which the impact of the UK recession on the housing market, unemployment, disposable incomes and market yields adversely affected the Company's revenues.
The board of directors of the Company ("the Board" or "the Directors") have been pleased with the levels of new business applications for the year ended 31 December 2009, in particular the Home Purchase Plan. However, this has not been reflected by a corresponding growth in the asset base due to the lack of capital and available funding. In addition, those customer deposits that have not been used to fund asset growth produced lower returns due to declining yields in the Islamic inter-bank markets affecting the Company's margin.
The Company continues to face challenging trading conditions and continues to review its operating cost base in light of future plans and potential efficiency improvements.
The Company expects to publish its interim results for the six months ended 30 June 2010 in September 2010.
Prospects for the Bank
As announced on 24 March 2010 and noted in the 2009 Annual Report and Financial Statements, the Bank has been seeking to raise capital to support the future growth of the Company and ensure that regulatory capital requirements are met. The strategy of the Company is to enhance profitability by growing its secured financing, through its Home Purchase Plan book, funded by longer term deposits and capital whilst increasing fee and commission income as a proportion of revenue.
Despite the continued market and trading conditions which make it difficult to forecast future revenues with any certainty, the Directors believe that following the Placing Islamic Bank of Britain will be well placed to take advantage of its position as the sole full-service wholly Sharia'a-compliant retail bank operating in the UK with the strategic support of QIIB, an established Islamic bank and committed shareholder in the Company.
Reasons for the Placing
The Board is conscious of its responsibilities to ensure that Islamic Bank of Britain has sufficient regulatory capital to manage and grow the business. The Board closely monitors the Company's capital position to ensure compliance with the FSA's capital requirements through the Internal Capital Adequacy Assessment Process (ICAAP). New capital is required to support the future growth in customer assets, and ensure that an appropriate buffer is maintained over the minimum regulatory requirement.
The new funding raised from the Placing will significantly alleviate the current constraints on the Islamic Bank of Britain's capital and, in the Directors' opinion, will allow renewed growth in the Company's asset base and assist the Company in moving towards profitability over the medium term.
The Company has explored its options for raising new finance and concluded that its shareholders are best served by the Company securing funds from an existing shareholder, QIIB.
The Directors believe that the Proposals are fundamental to the future of the Company and if the Placing were not to proceed, the Company would be unable to continue operating as a going concern. In this event the Directors believe that the value attributable to the ordinary shares would be severely reduced (or possibly nil).
Accordingly, the Board believes that it is essential for shareholders' interests to strengthen the Company's capital base with the proposed Placing.
Details of the Placing
The Company is proposing to raise £20 million (before expenses) by way of a Placing of 2,000,000,000 New Ordinary Shares at 1 pence each (which represents approximately 366 per cent.of Islamic Bank of Britain's existing issued capital) resulting in net proceeds of £18.2 million (after expenses). The New Ordinary Shares will represent approximately 78.5 per cent.of the enlarged issued ordinary share capital immediately following completion of the Placing.
The Issue Price represents a discount of 69.2 per cent. to the closing price of 3.25 pence per ordinary share on 26 July 2010 (being the last practicable date prior to this announcement) and of 67.5 per cent. to the net book value per ordinary share as at 31 December 2009.
The Placing is conditional upon certain conditions, details of which are in a circular being posted today to shareholders.
Application has been made for the New Ordinary Shares to be admitted to trading on AIM and it is expected that admission of the New Ordinary Shares ("Admission") will become effective and dealings in the New Ordinary Shares will commence at 8.00 a.m. on 18 August2010, being the first business day following the General Meeting.
The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the existing ordinary shares, including the right to receive all dividends and other distributions (if any) declared, made or paid by Islamic Bank of Britain after the date of issue of the New Ordinary Shares.
QIIB has transferred the full amount of the subscription monies for the Placing Shares (£20 million) to an account with Qatar National Bank in the name of QIIB, to be held by Qatar National Bank pending payment of such monies to the Company in accordance with the terms and conditions of the Placing letter, details of which are provided in the circular being posted to shareholders today.
Also within the circular are details of a conditional investment and shareholder agreement ("the Investment Agreement") entered into between the Company and QIIB as part of the arrangements in relation to the Placing which provide certain undertakings by the Company relating to the conduct of business during the period of strategic review described below and certain undertakings given by QIIB relating to the independence of the Company and the resolution of any conflicts arising between the Concert Party and the Company following the completion of the Placing.
Intentions of the Concert Party
To assist the Company in moving towards profitability over the medium term, QIIB has confirmed that it will carry out a strategic review of Islamic Bank of Britain's business and operations after Admission.
The strategic review will examine and consider the implementation of measures to enhance efficiencies, reduce costs and refocus the business of the Company in a manner consistent with UK market demands together with the needs and expectations of the Bank's target customers.
While the Concert Party does not have any current intentions regarding Islamic Bank of Britain's business that would (a) affect the strategic plans of the Company; (b) affect the employment of Islamic Bank of Britain's personnel, including the continued employment of, or the conditions of employment of, any of the Company's management;(c) affect the locations of Islamic Bank of Britain's business or operating subsidiaries; or (d) result in the disposal of or otherwise change the use of any of the fixed assets of Islamic Bank of Britain, any or all of these may be affected by the outcome of the strategic review.
No changes are currently intended to the Board of Islamic Bank of Britain.
Related Party Transactions
As at the date of this announcement QIIB holds more than 10 per cent. of the ordinary shares, meaning the Placing will be a related party transaction for the purposes of Rule 13 of the AIM Rules. Rule 13 of the AIM Rules requires the directors of the Company to confirm that they consider, having consulted with the Company's nominated adviser, Grant Thornton Corporate Finance, that the terms of the Placing are fair and reasonable insofar as its Shareholders are concerned. The directors with the exception of Mohsen Moustafa (the "Independent Directors"), having consulted with Grant Thornton Corporate Finance, consider that the terms of the Placing are fair and reasonable insofar as the Company's Shareholders are concerned.
Further, the Company entering into the Investment Agreement with QIIB will be a related party transaction for the purposes of Rule 13 of the AIM Rules. As noted above, Rule 13 of the AIM Rules requires the directors of the Company to confirm that they consider, having consulted with the Company's nominated adviser, Grant Thornton Corporate Finance, that the terms of the Investment Agreement are fair and reasonable insofar as Shareholders are concerned. The Independent Directors, having consulted with Grant Thornton Corporate Finance, consider that the terms of the Investment Agreement are fair and reasonable insofar as the Company's Shareholders are concerned.
Notice of General Meeting
Included in the circular being posted today is a notice convening the General Meeting of the Company to be held at the offices of the Company at Edgbaston House, 3 Duchess Place, Hagley Road, Birmingham, B16 8NH, on 17 August 2010 at 10.00 a.m. At the General Meeting, resolutions will be proposed to authorise the Directors to allot and issue shares, to approve the Panel's waiver of the requirement for the Concert Party to make a Rule 9 Offer, to amend the Articles of Association of the Company and disapply pre-emption rights (together, "the Resolutions").
The Independent Directors, who have been so advised by Ernst & Young LLP ("Ernst & Young"), consider the terms of the Placing, including the Rule 9 Waiver, to be fair and reasonable and in the best interests of the Company and its Independent Shareholders as a whole. In providing advice to the Independent Directors, Ernst & Young has taken into account the Independent Directors' commercial assessments.
The Independent Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting. The Independent Directors who are also shareholders have given irrevocable undertakings to vote in favour of the Resolutions in respect of their own beneficial holdings of ordinary shares which amount, in aggregate, to 54,000 ordinary shares, representing approximately 0.01 per cent. of the existing ordinary shares in issue as at the date of this announcement.
Mohsen Moustafa has not taken part in the Board's consideration of the Proposals due to a potential conflict of interest arising by virtue of his position as the Deputy-CEO of QIIB and therefore him being considered to be a member of the Concert Party. Accordingly, he is not entitled to vote on the Rule 9 Waiver in respect of the 100,000 Ordinary Shares which he holds and has undertaken to take all reasonable steps to ensure that his connected persons abstain from voting on the Rule 9 Waiver.
All the members of the Concert Party have provided irrevocable undertakings to vote in favour of the Resolutions (other than the Rule 9 Waiver) in respect of their entire beneficial holdings of Ordinary Shares which amount, in aggregate, to 245,926,746 ordinary shares, representing approximately 45.00 per cent. of the existing ordinary shares in issue as at the date of this announcement.
All defined terms used in this announcement are consistent with the defined terms set out in the circular.
For further information contact:
Islamic Bank of Britain Plc
Gerry Deegan, Managing Director 0121 452 7300
Sultan Choudbury, Commercial Director
Ernst & Young LLP (Financial Advisor)
Tim Medak, Mark Harrison, Ian Cosgrove, Jo Royden-Turner 020 7951 2000
Grant Thornton Corporate Finance (Nominated Adviser)
Gerald Beaney, Salmaan Khawaja, David Hignell 020 7383 5100
Ernst & Young LLP, which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively for Islamic Bank of Britain for the purposes of providing independent advice to the Independent Directors on the Proposals under Rule 3 of the Takeover Code and no one else in connection with the Proposals and will not be responsible to anyone other than Islamic Bank of Britain for providing the protections afforded to clients of Ernst & Young nor for providing advice in relation to the Proposals or any other matters referred to in this announcement.
Grant Thornton Corporate Finance, a division of Grant Thornton UK LLP, which is authorised and regulated in the United Kingdom by the FSA, is acting as the nominated adviser to Islamic Bank of Britain for the purpose of the AIM Rules. Grant Thornton Corporate Finance is not acting for and will not be responsible to any person other than Islamic Bank of Britain and will not be responsible to any person other than Islamic Bank of Britain for providing the protections afforded to its clients or for providing advice to any other person in connection with this announcement or any transaction or arrangement referred to in this announcement. Grant Thornton Corporate Finance's responsibility as the nominated adviser to Islamic Bank of Britain is owed solely to the London Stock Exchange. No liability whatsoever is accepted by Grant Thornton Corporate Finance for the accuracy of any information or opinions expressed in this announcement and no representation or warranty, express or implied, is made by Grant Thornton Corporate Finance as to the contents of this announcement, or for the omission of any material information from this announcement.