Emirates NBD in a better position to provide liquidity

Wednesday, Oct 12, 2011

Gulf News

Dubai: Analysts and bankers said the acquisition of Dubai Bank by Emirates NBD would put Emirates NBD in a better position to provide liquidity and capital support to Dubai Bank.

Dubai Banks loan concentration [five parties represent 47 per cent of the loan portfolio] may pose a problem in terms of final realisation of these. This may pose near-term pressure for ENBD, but they have the benefit of tapping Dubai Banks depositor base which will expand their reach further, said M. R. Raghu, senior vice president for research at Kuwait Financial Centre, told Gulf News.

The financials of Dubai Bank since 2009 are not available, so no assessment can be made on the health of its assets. The need for recapitalisation, however, suggests that the bank was suffering from heavy losses and major asset deterioration. The extent to which the bank has cleaned its books will have a significant bearing on the profitability of the consolidated ENBD, going forward, said Naveed Ahmad, Senior Financial Analyst with Global Investment House.

Analysts said they expect ENBD to acquire Dubai Bank for free, as the government nationalised the bank and diluted its former shareholders Dubai Holding and Emaar.

If we use a 15 per cent writedown of Dubai Banks loan book, and assuming Emirates NBD acquires it for nil, we calculate a negative impact of 1.1 per cent on Tier-1 capital, said Jaap Meijer, Head of Banks Research at HC Securities.

Despite sentiment driving down Emirates NBDs share prices, the deal reflected well on Dubais financial strength. The Dubai governments bond due in June 2021 rose, sending the yield down to the lowest level this month.

The yield on Dubai Holding Commercial Operations bond and on Emaar Properties sukuk fell as the news reached the market. The rate on Dubai Holdings 4.75 per cent bond maturing January 2014 dropped six basis points, or 0.06 percentage point, to 17.86 per cent, the lowest in a week.

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