Bank Forum's plans for 49% charter increase stall

At an EGM on August 19, Bank Forum (FORM) shareholders accepted plans for the bank to increase its charter fund by 48.7% to UAH 3.4 bln via an additional share issue, but failed to approve an update to the bank’s charter that could block the registration of additional share issues. Mykyta Mykhaylychenko: Given that amendments to the bank’s charter require the consent of 75% of shareholders registered at the meeting, we believe the EGM indicates that its major shareholders (Commerzbank with 63% and Ukrainian businessman Leonid Yurushev with 26.25%) have not reached an agreement on the charter fund increase, but will probably try to do so again shortly. Possible failure to increase the bank’s charter fund should not have a direct adverse effect on the bank’s equity position: as of July 1, its regulatory capital to risk-weighted assets ratio was 14% vs. the minimum requirement of 10%. In our view, the bank is still likely to redeem its Eurobonds maturing in October as scheduled, for which it will need additional support from parent Commerzbank. As for the bank’s stock, failure to increase its charter fund and offer a share buyback to minorities that do not support the share issue is clearly negative. At the same time, long term the stock remains interesting as it trades currently at P/B of 0.57 and fundamentally bank Forum’s prospects are solid thanks to the backing by Commerzbank.