ADCB considering Dh4.48bn bond issue

(CRAIG SCARR)  

Abu Dhabi Commercial Bank (ADCB) is considering issuing up to Dh4.8 billion in bonds to consolidate its financial base and expand lending activity to take advantage of a surge in demand for loans, analysts said on Sunday.

ADCB, one of the largest banks in the Middle East, has invited shareholders for a meeting next month to approve the issue of bonds that will sharply boost its shareholders equity and allow it to exceed the loan ceiling set by the Central Bank for the country’s 22 national banks and 27 foreign units.

The April 21 meeting at the bank’s headquarters in Abu Dhabi will discuss its 2007 financial results, the bond issue and other topics.

The general assembly will consider the proposal of the board of directors for the bank to issue debentures convertible into shares in the bank in an aggregate principal amount of up to Dh4.8bn, depending on prevailing market conditions and considering the best interests of the bank and the shareholders and subject to the approval of the relevant authorities, ADCB said in a statement to Emirates Business on Sunday.

The statement gave no details of the bond issue but financial analysts, said they believed the move is intended to support ADCB’s plans to expand its lending operations to take advantage of an upsurge in financing for projects in the UAE and other Gulf countries as a result of an economic upswing.

Such bonds are considered new investment tools in the UAE aimed at consolidating the shareholders equity in stages and the entry of new investors, depending on the bank’s decision, said Ziad Dabbas, share dealing adviser at the government-controlled National Bank of Abu Dhabi. These bonds can be converted into shares at a higher market value at a later stage and at the same time enhance the bank’s financial positions.

Experts noted that the planned bonds could remain within the shareholders equity for several years before the bank decides to convert them into shares.

ADCB’s bond plan is the latest in a series of bond and sukuk issues by UAE banks seeking to consolidate their capital and financial base in line with Central Bank instructions and expectations of further controls on loans. A similar issue has been made by the government-controlled National Bank of Abu Dhabi, which said last week it decided to increase its capital through convertible sukuk by nearly Dh56 million to Dh1.647bn to maintain its position as one of the biggest UAE banks.

The National Bank of Abu Dhabi has largely benefited from the bond issue in terms of profits and other operations, Dabbas said.

ADCB and other banks in the UAE rely heavily on lending for their income as investment instruments have remained limited in the region. An economic upsurge caused by high oil prices and a sharp increase in construction and other projects boosted the combined loans and advances by the country’s banks by more than Dh200bn to Dh722bn at the end of 2007 from Dh515bn at the end of 2006, according to the Central Bank.

Reporting results for last year, ADCB said its loans jumped by nearly 24 per cent in the first nine months of 2007, allowing it to make high profits. Its balance sheet showed the bank’s net profits swelled to Dh2.147bn from Dh2.085bn. Paid-up capital stood at Dh4bn, while assets grew to nearly Dh106.2bn from Dh81.08bn and shareholders equity to around Dh11.41bn from Dh10.72bn.