x Abu Dhabi, UAESaturday 20 January 2018

Banks see an end to credit crisis

ADCB kicks off global roadshow for investors as it considers new bonds to raise funds.

On the road again: ADCB has begun an international roadshow of investor meetings for a planned bond sale.
On the road again: ADCB has begun an international roadshow of investor meetings for a planned bond sale.

Banks in the UAE are emerging from a liquidity crisis and into a fresh credit cycle that will allow them to raise funds at "normalised" rates, according to Credit Suisse. The prediction comes as some of the country's largest lenders return to bond markets for the first time this year.

"It is already becoming easier for banks to raise money, for example through European or global medium-term notes like the one ADCB is planning. That was impossible six months ago, when these banks could not raise money," said Mohammed Hawa, an analyst at Credit Suisse and author of a new report titled "Positioning for the next big thing." Abu Dhabi Commercial Bank (ADCB) the country's third-largest lender, began a roadshow this week which is to include investor meetings in Hong Kong, Singapore, London and Abu Dhabi for a planned bond sale. The ADCB already has a US$7.5 billion (Dh27.54bn) global medium-term note programme in place.

The bank did not say how much it was looking to raise in a first step. The programme allows a lender to repeatedly issue fresh note without having to open its books several times to investors. Once the limit is reached, the lender has to issue a new note programme. "Things are normalising and we think investors should not ask for prices at distressed valuations? or worst-case scenario valuations," said Mr Hawa.

The National Bank of Abu Dhabi raised $850 million this month. And Emirates NBD, the country's largest lender by assets, is considering raising between $500m and $2bn this year if Government guarantees are in place by then. The Government has pledged to guarantee bank bonds, but that legislation is not yet in place. Banks are also now being forced to generate their own funds as the Government has stopped injecting new liquidity for now. Late last year, the Government promised Dh120bn in fresh funds and about Dh70bn has been taken up, while Abu Dhabi has pumped Dh16bn in Tier 1 capital into its banks.

Rising appetite for bond issues is not just limited to banks. A senior Standard Chartered official last week said the bank was talking to several Dubai entities about securing bond ratings that would enable them to issue debt. Abu Dhabi-backed companies such as Aldar Properties and the Tourism Development and Investment Company have raised several billion dollars of fresh bonds between April and June.

However, Dubai's estimated outstanding debt of at least $84bn still weighs on investor confidence. UAE banks were hard hit after international investors pulled about $180bn out of the country in the aftermath of the Lehman Brothers collapse. The liquidity squeeze was further exasperated as customer deposits remained flat. At the same time rising non-performing loans have forced banks to set aside provisions, which is putting pressure on their profitability. Credit Suisse raised its price targets for shares of six UAE banks because they were oversold.

ADCB in its prospectus for the note programme said the troubled Saudi conglomerates, the Saad Group and Ahmad Hamad Al Gosaibi Brothers, owe ADCB about Dh2.24bn. Of the total, Saad owes ADCB Dh1.5bn while Al Gosaibi owes the bank Dh751m. So far, ADCB has set aside Dh430m in provisions. That represents almost 2 per cent of the bank's gross loan book and 11 per cent of its equity. uharnischfeger@thenational.ae