Islami Bank recently announced that it planned to raise a total of Tk 20,000 crore using two methods: Tk 10,000 crore would be realised by selling the stake that S Alam Group holds in the lender and the rest would be made up through the issuance of new shares.

However, many were left to question whether it is even possible to raise such a large amount by selling and issuing shares, especially considering the dire situation of the financial sector and the air of political uncertainty in the country.

The chairman of the Shariah-based bank said he would invite former foreign shareholders like IFC and Al-Raji Saudi Group -- who exited due to a lack of good governance after the lender fell into the clutches of the S Alam Group -- to invest in it again by January.

According to Islami Bank's shareholding report, S Alam and associates collectively hold more than 30 percent of its shares.

Many were left to question whether it is possible to raise such a large amount by selling and issuing shares, especially considering the dire situation of the financial sector

The lender has 160 crore outstanding shares, with a market value of Tk 8,758 crore, or around Tk 53 per share.

So, if the S Alam Group holds around a third of those, the market price is closer to around Tk 3,000 crore.

To raise Tk 10,000 crore by selling that stake, the selling price must be three times higher.

However, the bank recently said the controversial Chattogram-based conglomerate holds around 80 percent of the lender's shares and had misrepresented its stake by purchasing scrips using pseudonyms.

But even if this larger stake is considered, the market price stands at around Tk 6,700 crore, meaning the price would need to double for it to fetch the amount being sought.

Anis A Khan, a distinguished banker who is also a former chairman of the Association of Bankers, Bangladesh (ABB), said Islami Bank's new board of directors, elected in late August following the political changeover on August 5, showed good intentions.

"But all due legal process for share sales should be followed," he added. As an alternative, if the government seizes the shares in line with rules and regulations and sells them, the bank would get some relief, added Khan, also a former chairman of the Bangladesh Leasing and Finance Companies Association.

It also remains unclear whether foreign investors would be willing to return after witnessing a lack of good governance first-hand.

In 2017, S Alam Group took control of Islami Bank, allegedly with assistance from government agencies.

After the takeover, the health of the bank, once the most profitable private lender in the country, deteriorated severely.

By early September this year, S Alam Group, whose founder weaponised his close political ties to the ousted Awami League regime, accounted for more than half of the total loans disbursed by Islami Bank of Tk 174,000 crore.

Following the takeover, many foreign investors gradually sold their shares, leading to a significant decline in foreign ownership.

By October 2023, foreign holdings had dropped to 8.26 percent, down from 70 percent prior to the takeover.

Multilateral development finance institution Islamic Development Bank (IDB), Al-Rajhi Co, Saudi-based company Arabsas Travel and Tourist Agency, and Saudi Arabian citizens Yousuf Abdullah Al-Rajhi and Abdullah Abdul Aziz Al-Rajhi sold their entire stakes last year and left the board.

Another problem with issuing new shares that Khan pointed out is a lack of depth in the stock market, which means it may be unable to provide an amount as large as Tk 10,000 crore.

Regarding share issuance and sales, Asif Khan, chairman of EDGE Asset Management, said there were two questions: a technical matter and the issue of valuation.

"Technically, Islami Bank can raise new capital. However, the process of selling S Alam's shares and using the proceeds to adjust defaulted loans may be more complex," he said.

"Regarding the valuation, we don't know what valuation investors are willing to meet until they go to investors.

"The expected valuation looks high. It can only be achieved if investors take other factors like relationship and strategic impact into consideration in addition to pure financial analysis," he added.

Saiful Islam, president of the DSE Brokers Association of Bangladesh, said it may prove difficult to sell new shares to general investors given the state of the stock market, which has stagnated.

Over the past 14 years, the market has been unable to muster enough strength to cross its previous highest position, which it recorded in 2010 after soaring to 8,918 points.

"So, the bank should find a strategic buyer, someone who will buy the share at a pre-negotiated price," he said.

The share issuance is likely to hurt its earnings per share, but Islam added: "The issue now should not be earnings per share, but sustainability."

He added that it is clear from the statement of the bank's chairman that his intentions are good, but said it was now time to provide a clear picture to existing shareholders.

He also recommended reducing lending and issuing bonds. At the same time, he advised to increase deposits by capitalising on the bank's previous goodwill.

Last week, the bank got approval from the BSEC to raise Tk 500 crore by issuing a subordinated bond.

But Khan said the size of this bond pales in comparison to the bank's size. He suggested the bank issue more bonds, including some perpetual bonds.

Islami Bank Chairman Md Obayed Ullah Al Masud did not receive phone calls or reply to messages seeking comment.