Emirates NBD eyes $1.7bn capital boost

CAPITAL GAIN: Option to convert deposits is likely to be exercised by a number of banks in the UAE, bank CFO said. (Getty Images)

Emirates NBD seeks to raise 6.3 billion dirhams ($1.72 billion) to bolster its capital base during the financial crisis by converting emergency federal deposits, its chief financial officer said, sending shares higher.

The option to convert the deposits, which will bolster regulatory capital held as a cushion to absorb surprise shocks, is likely to be exercised by a number of banks in the UAE, CFO Sanjay Uppal told Reuters in an interview.

"This is not really a bailout," Uppal said. "I see this as systemic support.

"I would consider it a bailout when the central bank is injecting money into the bank to support it," Uppal said.

The conversion comes as UAE banks struggle to resume lending after the credit crisis hit the booming economies of the Arab Gulf, provoking an exodus of foreign deposits and drying up liquidity banks need to lend to consumers and businesses.

"This option has been given to all banks in the country," Uppal said.

The bank, one of the top three in the UAE, received 12.6 billion dirhams as part of a larger programme sponsored by the Ministry of Finance in 2008 to boost liquidity in the banking system.

"Markets and institutions around the world have been impacted by the economic turmoil and central banks and governments in every part of the world are stepping up to support their financial systems and markets, and I think this has been a very supportive move to support us here," Uppal said.

Shares in the bank were up 4.8 percent at 10.42am UAE time, outperforming other UAE banks.

The conversion would boost the bank's capital adequacy ratio - a key measure of the soundness of a bank - to 14.3 percent from 11.3 percent at the end of 2008, when the bank wrote off 2.26 billion dirhams in assets, Uppal said.

ENBD would convert the deposits, provided last year to a number of UAE banks, to a 7-year bond paying 4.5 percent interest and non-convertible for 5 years, which would be used to supplement the regulatory capital reserve known as Tier 2.

"It is a substantially preferential price," Uppal said.

Uppal said an earlier newspaper report saying ENBD would seek to convert 12.6 billion dirhams ($3.43 billion) in deposits into equity was false. (Reuters)

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