How Arig might return from the grave (page 4 of 4)

The strategy going forward looks good to me." N

Arig's recapitalization has two motives: raising money to plug the financial gap left by three years of losses, and sending out a message to its clients that it still has the confidence of shareholders. Under the first stage of the plan (a capital reduction), the company will cancel existing shares and replace them with new shares. Shareholders will get five new shares for every 12 shares they held.

Many investors have already lost heavily, especially those who have held the company's stock since its initial flotation in 1997. But analysts say that the recapitalization is a good deal for shareholders.

"We believe the capital reduction is merely a book entry and does not affect shareholder value in a negative manner," says a recent report by the Securities and Investment Company (SICO) in Bahrain. "However, shareholders would benefit in the future as the capital reduction would allow Arig to start with a clean slate [and] start paying dividends to shareholders much earlier."

The second stage (a rights issue) involves Arig issuing $100 million in new shares. Partly, this is to raise cash, but mainly to gain a vote of confidence from shareholders. Shareholders can either buy the new shares outright or, crucially, defer payment for five years.

"The [deferred] payment option is an innovative one and is new to the regional financial markets," says SICO. Krueger confirms that the group is looking more for high-profile expressions of shareholder backing than a short-term cash injection. "What's important," he says, "is a visible sign of support."