Fed gives go-ahead for Discount Bank rights issue

The pending sale of the government's holding in Discount Bank and the rights and stock offering will create an overhang on the share.

Israel Discount Bank (TASE: DSCT) will likely hold its rights issue in December, after the US Federal Reserve granted its approval yesterday. The bank will wait until after it publishes its financial report for the third quarter in late November and for the government to sell its remaining 11.7% stake in the bank before holding the issue.

Discount Bank said in response, "With the approval from the US, the bank is completing the preparations for the offering and will decide on the timing on the basis of the market conditions."

The pending sale of the government's holding in Discount Bank and the rights and stock offering will create an overhang on the share, because they will greatly increase the supply of shares on the market and dilute the shareholders' stakes. This is one of the reasons why the share is traded at a capital multiple (market cap divided by shareholders' equity) of just 0.7.

Discount Bank is due to issue NIS 400 million in shares, amounting to about 6% of its share capital. Discount Bank needed Fed approval for the offering because its wholly-owned subsidiary Israel Discount Bank of New York is subject to US banking laws.

Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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