x Abu Dhabi, UAEWednesday 17 January 2018

UAE's Aabar buys $63m in UniCredit securities

The Abu Dhabi investment house has bought convertible bonds in the Italian based bank, Eastern Europe's largest lender.

Abu Dhabi's Aabar Investments has purchased ?49.8 million (Dh230.3m) of convertible bonds in UniCredit, the Italian lender, as European banks seek capital to cope with the financial crisis. The move comes as the financial meltdown in many banks in central and eastern Europe is creating opportunities for Gulf investors, say analysts. UniCredit is the biggest lender in central and eastern Europe and its shares have fallen to 12-year lows partly due to investor concerns about its exposure to the region's problems. The bank gets about a quarter of its revenues from eastern and central Europe, and a spokesman said yesterday it had no concerns about its operations in the region. "With excess liquidity, now is a good time for those with cash to buy whatever they want cheaply, which may include opportunities [in eastern Europe]," said Yazan Abdeen, a fund manager at ING Investment Management. Last week, three international lenders including the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank announced loans of up to ?24.5bn for eastern European banks. However, measures by the EU to shore up banks in the area are insufficient, say industry officials. "We are probably going to see more difficulties coming along the road in Poland, Hungary and the Czech Republic perhaps," said Fredrik Erixon, the director of the European Centre for International Political Economy in Brussels, according to Bloomberg. "The scope and magnitude is going to be so big that current instruments aren't going to suffice." This presents an opportunity for Gulf investors with available cash, say analysts. "This is a good time to hunt for bargains and those with cash have the upper hand," said Eric Swats, a partner at Rasmala Investments. The convertible bond, exchangeable into ordinary shares of Italy's second-largest bank by market value, would pay a quarterly coupon equal to the three-month euro interbank rate plus 4.5 per cent interest per year, Aabar said in a statement posted on its website. Aabar is controlled by the International Petroleum Investment Company (IPIC). The government-focused sovereign wealth fund owns a 36 per cent stake in Aabar and has the option to swap bonds for shares to take majority ownership. Last month, IPIC launched a US$500m (Dh1.83 billion) takeover bid for Canada's Nova Chemicals. Analysts are viewing the move by Aabar to invest in UniCredit as part of an overall scheme to diversify holdings geographically and across varied sectors. "Most of these groups will be open to investments locally as well as internationally; it depends on their perceptions of where opportunities exist," said Mr Swats. Khadem al Qubaisi, the managing director at IPIC, has described Aabar as a vehicle for IPIC to diversify its portfolio away from the energy sector. Analysts concede the firm's decision to invest in banks abroad, rather than regional entities, suggests that the firm is finding good investment opportunities in areas such as eastern Europe, where capital is being sought to shore up the region's economies. "[Aabar's] concern is more about returns at the end of the day," said Mr Abdeen. Aabar stated that the securities, which mature on Dec 15 2050, carried an initial exchange price of ?3.083. Analysts are waiting for information on further terms of the bond to be made public, such as the underlying assets that back it, before analysing Aabar's strategy. "We need to know more about the terms [of the convertible bond]," said Mr Abdeen. "[Aabar] has no track record in financial mergers and acquisitions for us to benchmark their valuation process." The convertible bond issue is part of an effort by UniCredit to boost its capital by ?6.6bn. UniCredit representatives declined to comment further on capital-raising plans when contacted. Italy approved a scheme last month to bolster banks' capital through bonds in a crisis-fighting measure expected to involve up to ?12bn. Under the plan, banks would issue bonds that the government would buy and use the proceeds to shore up their capital. * with Reuters and Bloomberg shamdan@thenational.ae