x Abu Dhabi, UAEThursday 20 July 2017

Emirates NBD ready to set funding tone with debt swap

Emirates NBD tests the waters of credit markets with a debt swap, as a number of UAE banks look to refinance their upcoming debts.

Emirates NBD is preparing to test investor appetite with a debt swap, as the banking sector begins a round of refinancing that could set the tone for fund-raising efforts for the rest of the year.

The Dubai bank, the UAE's largest by total assets, will offer longer dated notes due in 2018 to holders of its existing subordinated debts, due in 2016. Those have a total of US$514 million (Dh1.88 billion) outstanding.

The notes will be priced at 1.5 per cent above three-month US dollar London interbank offered rates, according to a filing to the Nasdaq Dubai exchange. Investor demand for the swap will be revealed after the offer closes on Thursday.

Analysts said the move was primarily an effort to bolster capital adequacy rather than address liquidity needs. But the swap comes as several of the UAE's big banks attempt to refinance their upcoming debts.

Regional debt issuances dwindled in the first quarter of the year because the Middle East's political turmoil sparked widespread concern.

Although issuers are returning to the market, this week's takeover of Dubai Bank may raise some question marks over international investors' appetite for bank debts. The Dubai Government moved to take over the Islamic lender on Monday to protect depositors.

However, investment bankers said the demand for credit from Sharjah Islamic Bank, which returned to markets with a $400m sukuk on Wednesday, showed that investors in UAE bank debt were not taking fright.

"I don't think demand for banks' [issuances] in the UAE is dropping by any stretch," said one Dubai investment banker.

Abu Dhabi Commercial Bank has sterling, euro and yen bonds worth the equivalent of $880m that are due for repayment at the end of this year, while Abu Dhabi Islamic Bank must repay an $800m sukuk maturing in December, according to data from Bloomberg News. For Emirates NBD, $773m worth of debt is due to mature this year.

Capital adequacy ratios in the banking sector have increased greatly as the UAE's property decline eases and revenues from higher oil prices flow through the financial system.

"Liquidity positions of the banks have dramatically improved recently," said Jaap Meijer, a financial analyst at Alembic HC Securities.

Speculation has been mounting that Dubai Bank will be merged with Emirates NBD or Emirates Islamic Bank, its Sharia-compliant subsidiary.