Investors vote down Commercial Bank of Dubai’s $750 million debt plan

Commercial Bank of Dubai did not feel the need for the bank to issue debt. Ryan Carter / The National

Commercial Bank of Dubai (CBD) said it failed to win shareholder approval for a plan to raise up to US$750 million of debt to fund its future growth in a sign of increasing investor caution over the macroeconomic outlook.

The Dubai-based lender said that it fell short of a 75 per cent majority needed to get the green light to issue the so-called Tier 1 Capital Perpetual Securities after 39.24 per cent of shareholders present at the meeting yesterday rejected the proposal.

Tier 1 capital is a gauge of a bank’s financial stability in the eyes of regulatory authorities as it is the money which underpins all of the risks it takes in lending and investing.

“The timing was quite good in terms of low interest rates and good investor appetite for such issues despite the fact that we weren’t desperately in need of capital at this time and so that’s why we went to the shareholders,” said John Tuke, head of treasury at CBD.

“Shareholders felt because we didn’t need it immediately and because the outlook has changed over the past couple of months because of economic growth here that perhaps we could delay for a while.”

In recent months the UAE’s top bankers have been predicting loan growth will stall this year after several years of buoyant expansion.

Alex Thursby, the chief executive of National Bank of Abu Dhabi, said at the end of July that he was expecting UAE loan growth to drop to 5 or 6 per cent this year from 8 and 9 per cent last year as the economy begins to slow amid lower oil and home prices.

The past three years have been beneficial for UAE banks as they emerged from the 2009 debt crisis, in which many Dubai government-related entities came close to bankruptcy as property prices collapsed and capital markets dried up.

Government spending on infrastructure and low interest rates propelled the economy to grow at more than 4 per cent over the past two years.

However, the oil slump has put a brake on the UAE’s rate of economic expansion, with the IMF forecasting 3.2 per cent growth this year.

“CBD is already quite well capitalised so there wasn’t really a pressing need to issue a Tier 1 bond,” said Shabbir Malik, a Dubai-based bank analyst at the Egyptian investment bank EFG-Hermes.

“Even though it was cancelled, I do not expect this event to affect their growth prospects. Low oil price has reduced medium to long-term visibility for the sector, which could be why some shareholders have voted against the Tier 1 note issue.”

That has not prevented other banks from raising debt as the period of rapid expansion for the bank has left its so-called capital ratios tight, especially in light of regulations such as Basel III that require banks to be better capitalised, according to analysts. Abu Dhabi Islamic Bank, the biggest Sharia-compliant lender in the emirate, increased its Tier 1 Capital instruments programme to $3 billion from the previously approved limit of $2bn after winning shareholder approval at the end of June.

And FGB said yesterday that it had raised $1bn in a three-year loan, some $250 milllion more than it had initially envisaged.

“The transaction is a continuation of our strategy to lengthen our liability profile,” said Christopher Wilmot, head of FGB’s treasury and global markets group.

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