x Abu Dhabi, UAETuesday 16 January 2018

Emirates NBD seeks $2bn in fresh capital

The bank is taking advantage of a new federal law that guarantees bonds issued by local finance institutions.

Emirates NBD, the country's biggest lender, plans to raise up to US$2 billion (Dh7.34bn) in fresh capital this year, taking advantage of a new federal law that guarantees bonds issued by local banks. The law, announced in June, is expected to cover medium-term notes and longer-dated bonds, helping local lenders who are under pressure to boost deposits and fund new lending.

"It will hopefully be this year," said Sanjay Uppal, the chief financial officer at Emirates NBD. The bank plans to issue a three to five-year bond under a Euro Medium-Term Note (EMTN) programme, a platform from which bonds of various maturities can be launched, as soon as the Government formalises its bond guarantee scheme. Other local banks without sufficient deposits to issue new loans are expected to follow Emirates NBD, Mr Uppal said.

"I would imagine us and other banks are awaiting the formalisation [of the guarantee]," he said. "That could help the entire funding process. This will help address any liquidity concerns you have." The banking system has faced a liquidity shortage this year, triggered by the withdrawal by international investors of an estimated Dh180bn in "hot money" invested during the oil-fed economic boom. Local banks have struggled to raise enough deposits to back their lending, while many have persistently exceeded the Central Bank's guidelines, which cap loans at 100 per cent of deposits.

"Sovereign guarantees reduce risk," Mr Uppal said. "In the current environment, international investors had apprehensions about new issuances, but now the Government has stepped in." Bank lending has been almost flat since the end of last year, in contrast to the previous four years, when the bull market encouraged investors to spend more and helped new lending grow by an average of about a third every year.

Deposits largely remained flat in recent months, according to Central Bank data. Emirates NBD has boosting lending by 3.7 per cent and new deposits by 5 per cent in the first half, compared with the end of last year. Emirates NBD last issued three-year paper in September last year, when it paid the London interbank offered rate (Libor) plus 25 basis points. "The pricing was fantastic," Mr Uppal said.

At present, Emirates NBD has Dh19.5bn in outstanding EMTNs and syndicated bank borrowing of Dh5.5bn. So far this year, it has paid back Dh3.7bn, with Dh2.2bn left to be repaid by the end of the year. Mr Uppal declined to comment on the expected pricing for the new bond. "But just look at lots of debt issuance by government entities - [it would be] in a range of that." The Federal Government does not have a sovereign rating. Standard & Poor's rates Abu Dhabi at "AA".

Between April and June alone, state and corporate issuers in the region have raised more than $8bn in new bonds. Mr Uppal said the guarantee would make new funding more affordable. "But we will re-assess this post-September," he said. Emirates NBD lacks Dh46bn in customer deposits to back its outstanding loans. That shrinks to about Dh20bn when syndicated and other loans over six months are included in deposits.

But Mr Uppal stressed the bank could always rely on interbank borrowing for the short term. "Our interbank borrowing line has remained stable over the last few quarters." In a pinch, banks can also use the Central Bank's repurchase facility for short-term funds. That has just been extended to one month from a week. Emirates NBD's second-quarter profits fell 41 per cent from a year earlier after the bank set aside Dh1.15bn in provisions for possible defaults.