LONDON, 12 April 2004 — The signing of a “definitive settlement agreement” between the Kuwait-based The International Investor (TII), headed by Adnan Al-Bahar, and the Jeddah-based Dallah AlBaraka Group (DAG), headed by Saleh Kamel, in Bahrain on April 6, 2004, closes the chapter of one of the longest disputes in Islamic banking history following the failed merger between the two groups.

The merger agreement was signed on June 18, 2001, when TII and DAG agreed to merge the assets of the latter’s nine baking subsidiaries (incorporated in Bahrain under AlBaraka Banking Group (ABG) with those of TII. The merger was in effect an equity swap plus a cash element of $163.2 million whereby TII would acquire DAG’s equity in the nine banking subsidiaries in exchange for a share in the TII Group plus the cash element, subject to the valuation of TII’s share price.

On April 6, 2002, TII issued an official statement stating that following a request by DAG, the parties had agreed to unwind the merger. No reasons were given for the action. TII’s board agreed that arbitration in London through the rules of the International Chamber of Commerce (ICC), was the quickest, fairest, and most transparent way to reach a settlement.

The final settlement agreement is a welcome relief not only for the two groups but also for the sector as a whole.

The agreement, according to sources close to the parties, “will bring all the cases brought by each party to a settlement and Dallah AlBaraka Group shall continue to be a substantial shareholder in TII.” The irony is that the agreement seems to be cementing the relationship between TII and DAG which the original merger was supposedly all about.

Details of the settlement have not been released. But it seems that some sort of debt-for equity trade-off has been reached. Otherwise DAG would not have a “substantial shareholding” in TII.

The impact of the agreement has already yielded positive results. Shares in TII, for instance, resumed trading on the Kuwait Stock Exchange (KSE) in January 2004 with a vengeance. TII shares were suspended on the KSE on March 31, 2002. The share price at the time of suspension closed at 0.196 Kuwaiti dinars per share. This compared with the TII closing share price at the resumption of trading in January 2004 of 0.29 Kuwaiti dinars, after reaching a month high of 0.385 Kuwaiti dinars per share.

In January 2004 trading of TII shares was hectic with almost 55 millions shares exchanging hands in 2,142 transactions and with a value of 17.5 million Kuwaiti dinars, indicating healthy market appetite for TII shares and reflecting early reports of the settlement with DAG. TII’s average market capitalization also shot up from $115.8 million in March 2002 at the time of their suspension to $174.89 million at end January 2004. The surge in the TII share value was partly due to the buoyant Kuwaiti stock market, which in January 2004 saw the KSE Index broke the 5,000 points barrier to close at 5,139.3 points on Jan. 28, 2004 — up 349.1 points on the previous closing at the end December 2003.

The stocks of Islamic financial institutions on the KSE are some of the most actively traded stocks on the bourse, and perhaps of all the listed Islamic financial institutions worldwide. Investors had additional comfort in that DAG remains a substantial shareholder in TII, transforming the institution from a parochial Kuwaiti one to an international one with distribution access to nine Islamic banks in countries ranging from South Africa, Turkey, Egypt, Lebanon, Bangladesh, Jordan, Bahrain, Tunisia, and Algeria.

For the Dallah AlBaraka Group, this is also a major potentially positive development. Its Bahrain-based banking holding entity, AlBaraka Banking Group (ABG) has been rudderless since the demerger announcement. ABG’s sister entities such as Al-Tawfeek Company for Investment Funds and Al-Amin bank have also recently seen major movements.

Perhaps the settlement is also a good time for Saleh Kamel and Adnan Al-Bahar to overhaul the entire management structures of both the TII and the DAG entities, and to review the business focus of the two related groups.