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The

Event:

Bank

Muscat

likely

to

reclassify

its

investment

in Silkbank

Pakistan

Bank Muscat has disclosed that its associate, Silkbank in Pakistan (35% Holding) is planning for a rights issue. The Bank has stated that regulatory

approvals in Oman have not been forthcoming and the bank is not in a position to participate in the same. As per the disclosure, due to the non

participationofBankMuscat intherights issue,thebanksstake inSilkbank isexpectedtobediluted,thoughtheactualdilution isnotknownatthis

stage.However, iftheBankMuscatstake isreducedtobelow20% it is likelythattheaccountingofthis investmentcouldchangefromassociateto

markedtomarketinvestment.

Asof30Sep09,theholdingvalueofSilkbankinvestmentwasRO23.4million,whichincludedRO14millionofbookvalueandRO9.4millionofamount

adjustedagainstequityonaccountofdepreciationofthePakistanRupee.Againstthisholdingvalue,themarketvalueasofthatdatewasapproximately

RO8.3million.BankMuscathassaidthat itwillassesstheaccounting treatmentof this investment inconsultationwith itsexternalauditorsandwill

accountforthisasrequiredby internationalaccountingstandards.Howeverasperthebanksstatement, it is likelythatthebankcouldwritedowna

significantpartofthisinvestmentofRO23.4millionduringthelastquarterof2009(Q4FY09).

Comments

SilkbankRightsIssue:RestructuringtomeetMinimumCapitalRequirement

Silkbank isyettoannouncethedetailsof itsrights issue.Webelieve,theBankwouldrestructuring itscapitaltowriteoff itsaccumulated lossesand

looksforwardtoploughinadditionalcapitalthroughrightsissue(wehaveassumedthesametohappenatfacevalue PKR10.00)tomeettheMinimum

CapitalRequirement(MCR)setbyStateBankofPakistan(SBP).AsperSBPnorms,MCRforbanksbyendof2009issettobePKR6Billionandbyendof

year2010,thesameissettobePKR10Billion.

SilkBank(PKRMillion) Sep09

Capital 9,003.15

AccumulatedLosses (7,459.57)

Reserves

218.56

Networth 1,762.14

Source:CompanyReports;GBCMResearch

12th

Nov2009

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PostRightsBankMuscatHoldinginSilkbanktofallfrom35.0%toest.9.02%

PostrightsissuewebelieveSilkbanktoachieveitsMCRofPKR6billion.Afterthis(assumingrightsissueisdoneatFaceValueofPKR10.00)holdingofBankMuscatis

estimatedto

fall

from

35.07%

to

9.02%

(PKR

541.33

Million)

(Any

discount

in

rights

pricing

would

lead

to

additional

dilution

in

its

holding.)

Hence,

we

believe

Bank

MuscatrequirestoreclassifytheinvestmentinSilkbankfromanInvestmentinAssociatetoAvailableForSale.

ImpactofSilkbankcapitalrestructuring

Assumption:RightsIssueatFaceValueofPKR10.00

AdjustedCapital PKRMillion 1,543.58

AdditionalCapitalRequired PKRMillion 4,456.42

NewCapital PKRMillion 6,000.00

BankMuscatHoldingAsofNow % 35.07%

BankMuscatHoldinginAdj.capital PKRMillion 541.33

BankMuscatHoldingPostRightsIssue % 9.02%

ImpactonReclassification

As of 30th

September 2009, Bank Muscat carries its Investment in Associate Silkbank at RO 13.962 Million as Investment in Associate and RO 9.459 Million as

cumulativeexchangelossthroughitsequity.PostrightsissueofSilkbank,holdingvalue(@PKR10.00),reducestoRO2.500Million.Afterthiswehaveestimatedan

totalimpactofRO20.921MilliononitsQ409earnings.HowevertheimpactontheequitywillbelimitedtoRO11.462Million.

ImpactofReclassification

Silkbank CMP PKR 4.11

SilkbankAdjustedPriceassumingatFaceValue PKR 10

Valueof

Bank

Muscat's

Holding

in

Silkbank

Post

Rights

PKR

Million 541,335

ConversionRate PKRMillion 216.54

ValueofBankMuscat'sHoldinginSilkbankPostRights

(Assumptionthatthemktpriceadjuststopostmoneybookvalue)

ROMillion 2,500

CarryingValueofSilkbank BankMuscatendofSep'09 ROMillion 13,962

ImpactonEarnings onreclassification ROMillion 11,462

Impacton

Earnings

on

Exchange

loss

RO

Million 9459

TotalLossonearnings 20,921

LossadjustedtoShareholdersEquity ROMillion 11,462

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We

have

estimated

the

Bank

to

report

RO

94.331

Million,

assuming

the

Bank

fully

provides

for

its

exposure

in

Saudi

based

Saad

and

Ghosaibi

groups.Now,ifreclassificationofitsinvestmentsinSilkBankhappenswearriveatanestimatedNetprofitofRO73.410MillionforFY09E,which

translatestoreportedEPSofRO0.068.BankMuscatsreportedBookValueperShareason30thSeptember2009isRO0.656.Theimpactfrom

reclassificationofSilkbankisareductionofonlyest.RO0.011toRO0.645.Thestockiscurrentlytradingatamultipleof12.5XonFY09EandP/BV

of1.32X,oneamongthelowestintheregion.Withthebalancesheetbeencleanedupduringtheyearandthelikelihoodofgrowthpickingupin

2010,werecommendinvestorstobuyondecline.

7/27/2019 BKMB- Event Update

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InstitutionalSales HunainaBanatwala,(+968)24790612559InstitutionalBrokerageTalalAlBalushi,(+968)24790612 560

EquityResearch KanagaSundar,(+968)24790612 534|VijaySridharan,(+968)24790612 533

Disclaimer:Thisdocumenthasbeenpreparedand issuedbyGulfBaaderCapitalMarketsSAOC (theCompany)onthebasisofpubliclyavailable information,

internallydevelopeddataandothersourcesbelievedtobereliable. Whileallcarehasbeentakentoensurethatthefactsstatedareaccurateandtheopinions

givenarereasonable,neitherGulfBaaderCapitalMarketsSAOCnoranyemployeeshallbe inanywayresponsibleforthecontentsofthisreport.TheCompany

may have a position and may perform buying/selling for itself or its clients in any security mentioned in this report. This is not an offer to buy or sell the

investmentsreferredtherein.