DUBAI: Bahrain-based bank Ithmaar plans to raise $400m to boost its balance sheet and drive expansion, hoping its shareholders will back it by subscribing for shares above their market price.

The bank plans to raise up to $200m by selling equity to existing shareholders at $0.25, compared with $0.195 where they were trading on Thursday. It will also sell a mandatory convertible Islamic bond for the remainder.

Jithesh Gopi, head of research at investment bank SICO, noted that under Bahrain market rules, companies cannot price capital hikes below the par value of their stock, which in Ithmaar’s case is $0.25.

“We don’t know the offering details yet, but if you are a retail investor you would rather buy the stock in the market at a lower price,” Gopi said.

Other market participants also said the capital raising looked difficult because of market conditions.

“I feel it is a difficult situation to raise capital. From a market perspective, we see it as a challenge but they (Ithmaar) have a strong shareholder base, so you never know,” said one fund manager from the Gulf Arab region who did not want to be named.

Ithmaar has been trying to recapitalise after posting a $235 million loss for 2009 due to bad loans and lower asset valuations. It also plans to convert itself into a retail bank by integrating its fully owned Shamil Bank, a Bahraini retail bank.

“The capital increase is to support Ithmaar’s reorganisation and expansion plans after it was affected by the financial crisis,” said Gopi. “Ithmaar reported a significant loss last year and so the proposed merger with Shamil Bank will hopefully make the group stronger.”

Debt capital markets in the Gulf Arab region have remained mostly shut to the private sector over the past months, as confidence has been hit by corporate defaults and the debt crisis in Dubai, the region’s business and tourism hub.

In February, Saudi home builder Dar Al Arkan, raised a lower-than-expected $450m from a sukuk sale that was priced at 10.75 percent, the first issue from the region since Dubai’s debt problems jolted markets.

“We decided the size of the offering after carefully considering various factors, including the bank’s reorganisation plans and our long-term strategy,” said Ithmaar Chief Executive Mohamed Hussain in a statement.

The bank was not immediately available for further comment. Ithmaar has appointed Shamil as the receiving bank and KPMG as the issue registrar, it said.

The share issue is due to take place between March 16 and March 25.