NBAD completes innovative capital raising

The Notes pay interest at 0.25% over 3 month EBOR, and contain an option to convert into ordinary shares of NBAD at the 2nd, 3rd, 4th and 5th anniversaries of the Notes issue date, at predetermined strike prices.

The Notes will count as Tier 2 capital for the Bank. The first conversion price is set at AED 42, which will adjust to AED32.31 subject to the AGM's acceptance of the board's recommendation for a 30% bonus share issue at its meeting on 19th March.

"This is one of the most innovative structures ever launched in the UAE market," said Michael Tomalin, Chief Executive of NBAD. "Combining features of high yield, capital creation and convertibility. Subordinated convertible notes are a very efficient way of raising bank capital.

'The Notes will increase our regulatory capital by some 35% with no dilution at all in the first two years. Even if fully converted after year 2, dilution is only about 6%, with obvious benefits to the existing equity holders. We deliberately chose not to go directly to the equity market via rights issue, due to the earnings dilution that results."

The notes were privately placed with a wide variety of individual, corporate and institutional investors locally and internationally. They will be listed shortly on the ADSM for enhanced liquidity. NBAD's Corporate Finance Department advised and lead-managed the issue.

"This is a double first for the UAE market," said Richard Amos, General Manager of NBAD's Investment Banking Division. "The first ADSM-listed local currency subordinated capital note, and the first broadly distributed convertible. It's a win, win situation: very good for investors who receive a coupon above market interest rate and 100% participation in the upside performance of NBAD's share price, and very good for existing shareholders as the issue counts as fresh capital which allows the bank to continue its extraordinary growth with minimal dilution. It's value for the investors, and value for the shareholders."

"We are proud to continue our tradition of financial innovation. NBAD brought the first Dirham bonds to market in 1999 (with issues by BMW and Abbey National), then lead-managed the first bond issue securitised on UAE assets (Abu Dhabi Power Bonds, 2004), and now is launching the first locally-listed, Tier 2 capital, Dirham denominated subordinated convertible," said Amos.

"The issue should be positive for our long term share price, as the minimal equity dilution allows the benefits of future earnings growth to flow directly to our earnings per share," said Tomalin.