Credit Suisse has struck a deal worth 6 billion Swiss francs (Dh22.64bn) with Qatar Holding and the Olayan Group of Saudi Arabia to ensure the bank has an adequate capital safety net.
The investment will help the bank get the jump on Swiss regulatory requirements, yet to be finalised but due to come into effect in 2019. Switzerland imposes stringent capital-adequacy requirements on its banks because of their importance to the economy of the country.
Credit Suisse will issue contingent convertible bonds, also known as cocos, in exchange for cash or Tier 1 capital notes sold to investors in 2008.
"We have worked in close co-operation with our primary regulator Finma to ensure that the buffer capital notes will qualify under the future Swiss capital rules as contingent capital," said Brady W Dougan, the chief executive of Credit Suisse Group.
The Qatar Investment Authority, which owns Qatar Holding, and the Olayan Group have already acquired significant stakes in the bank, and the notes could allow them to increase their holding in the Swiss bank under certain circumstances. Cocos are debt instruments that convert to equity if a bank's Tier 1 capital ratio, a measure of capital strength, falls below a certain point. They have been considered a means of quickly recapitalising a bank in the event of a financial meltdown.
The investment is a rare show of interest from Gulf investors in the nascent market for cocos, the appeal of which has been considered limited until now.
"It's certainly positive to see that there is a market for these bonds, which has been put in doubt before," Dirk Becker, an analyst at Kepler Capital Markets, told Bloomberg. Usman Ahmed, the head of fixed income at Emirates NBD, said the Gulf had largely missed out on issuing coco bonds because of a scarcity of new debt issuances by banks in the past six months.
Implementation of Basel III banking regulations in the UAE could make coco bonds more popular, Mr Ahmed said.
"Cocos make a lot of sense, so far as providing a capital cushion to banks," he said, although he stressed that the UAE's banks were well capitalised.