Gulf Finance House (GFH), the troubled Islamic investment bank based in Bahrain, wants to raise up to US$500 million (Dh1.83 billion) from investors after declines in Gulf property prices and the fracturing of its business model led to huge losses last year.
GFH was among the hardest hit in the region by the financial crisis and is one of many in Bahrain and Kuwait forced to restructure debts and rethink their methods for raising money, making investments and borrowing.
The bank posted $728m of losses last year, which its management attributed mostly to write-downs on its interests in huge property developments in the Gulf, India and north Africa.
GFH had earlier said it would look to raise about $300m under a recapitalisation plan but raised that total yesterday.
The company said in a statement it would call a shareholder meeting to seek approval to raise fresh capital to support the bank's day-to-day operations.
"GFH hopes new capital now will be enough to pay GFH's operating costs until new business lines can become profitable," said John Sandwick, an Islamic asset manager in Switzerland. "But whether those new businesses will find customers is a big question."
Shareholders are also to vote on a consolidation of shares through which four old shares would be exchanged for one new.
And the bank will seek a reduction in capital, which observers say will allow it to swallow accumulated losses and start paying dividends immediately after raising new capital. The consolidation would reduce the number of shares on the market but would not affect the company's market value. Companies usually consolidate their shares to prop up the share price.
GFH, which is listed on the Bahrain Stock Exchange, last traded on Tuesday when it closed at 125 Bahraini fils a share.
"During the meeting, shareholders will be asked, amongst other matters, to approve the four-to-one consolidation of shares, a reduction in paid-up capital and the issuance of an equity-linked convertible murabaha of up to $500m," the company said in a statement.
The company also asked that its shares be suspended from trading "to avoid undue speculation and protect the interest of its shareholders".
GFH ran into trouble last year after its business model, based on charging premiums to investors on big Energy City projects in Qatar and Libya and commercial zones in Mumbai and Tunisia, cracked when banks and investors tightened lending.
Hit by a lack of revenues to finance its operations and pay debts, GFH was forced to reach new terms with creditors on hundreds of millions of dollars of debt.
It also took huge write-downs on its property projects and other assets that lost value as global markets cratered, leading to the losses it announced last year.
Under Ted Pretty, the Australian who was appointed the chief executive of GFH last year, the company is fighting to find a new way forward.
afitch@thenational.ae