Unicorn plans new Islamic bank in Bahrain

Unicorn Investment Bank is looking to establish a new Islamic bank in Bahrain, even as the global economic and financial crisis is changing business conditions and, possibly, business practices.

"We are locking in the founder investors right now," Majid Al Refai, the bank's Managing Director and Chief Executive Officer, said yesterday. "God willing, we should announce it in the first quarter."

Islamic banks have expanded and proliferated around the world over the last few years as Muslims around the world increasingly seek banking services that adhere to the tenets of their faith, such as avoidance of interest and speculative activity.

A run-up in oil prices, leading to an economic boom in much of the Gulf, also contributed to rising demand for Shariah-compliant financing.

Now, however, Islamic banks are facing some of the same difficulties as their conventional counterparts, particularly a drying up of liquidity that means many deals are being put on hold. Although Unicorn has a large pipeline of potential deals, bank's reluctance to lend is holding back many of them, said Refai.

Nonetheless, he is optimistic of posting good full-year earnings.

"We are targeting a 10-15 per cent increase in net profits," he said, saying that will come mostly from private equity and strategic mergers and acquisitions deals.

Unicorn made $49.59 million (Dh182.16m) in net profit in 2007, and earlier this month reported net profit of $53.4m in the first nine months of 2008, up 68 per cent on year.

While he declined to give specific profit targets for 2009, he said the bank looks to show consistent rather than variable growth in profits. Islamic bonds, or sukuk, which were the source of profits in 2007, have been a smaller source of profit this year with the sukuk market slowing in much the same way as the conventional bond market.

Instead the bank has been focusing on syndicated loans. "We are actually working on a very large syndication coming up soon," Refai said.

The deal for $300m to $500m is for a client in the region, he said, without elaborating.

The bank also continues to look for strategic acquisitions. It expects the closing of its purchase of Bahrain Financing Company, one of the nation's leading foreign exchange and remittance houses, in the next two to three weeks.

Unicorn aims to expand its remittances business in the Gulf "aggressively" through links with existing banks, opening branches and acquisitions, he said. "We think the remittance market is a very strong market."

Next month, the bank will, along with a Kuwaiti partner, launch a $20m open-ended equity fund, the Excalibur Fund, to invest in Middle Eastern stocks.

Investcorp said the credit crisis is putting its earnings under pressure, but it is still able to pull off private equity deals. "It's a difficult first six months for us," Investcorp's Chief Operating Officer Gary Long said.

"The business is under a little bit of pressure in terms of earnings," he said.

Long said the bank, which generates most of its income from investing Gulf wealth, has been affected by falling hedge fund returns and equity valuations.

Investcorp is spending a lot of time guiding its portfolio companies through the current crisis as their revenues are hit by recession in Western economies.

He said injecting cash is one option.

Investcorp will in January disclose earnings for the first six months of its current business year that ends in June 2009.

Long said Investcorp over the coming weeks will finalise a private equity deal in Saudi Arabia in the range of $70m to $90m and during the first six months of its business year has closed a "rather large" deal in Europe, details of which the firm will announce soon.

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