Nov. 21 (Bloomberg) -- Burgan Bank SAK, the third-biggest Kuwaiti lender by assets, plans to raise 100 million dinars ($354 million) from a bond sale this year to boost capital as it expands, the chief executive officer said.
The seven- or 10-year notes will probably be denominated in the local currency, Eduardo Eguren said in an interview yesterday at the bank’s headquarters in Kuwait City. The lender expects to get central bank approval for the sale in the next few days and has appointed Kipco Asset Management Co. as an adviser, he said. NBK Capital Ltd., the investment banking unit of National Bank of Kuwait SAK, is also working on the bond.
“When you grow your balance sheet, your need for capital goes up,” Eguren said. “We are coming with two options, fixed rate and floating and we will define it based on demand. Hopefully it will be issued before year-end, we are moving quickly. I have no doubt that we will have oversubscription.”
Burgan Bank will tap the debt market as borrowing costs for lenders in the six-nation Gulf Cooperation Council tumble to near record lows, giving them an opportunity to raise funds as credit growth accelerates. The yield on Burgan Bank’s 7.875 percent notes maturing in September 2020 dropped 96 basis points, or 0.96 percentage point, this year to an all-time low of 5.72 percent on Nov. 8, before trading at 5.79 percent yesterday, according to data compiled by Bloomberg.
“I would like to have a secondary market for our bonds because that obviously lowers our costs and allows many investors to exit when they need,” Eguren said. The bank wants to “develop the local market and help create a yield curve in Kuwait” of dinars, he said.
The Kuwaiti bank, which posted a 15 percent increase in income from lending in the third quarter, acquired Istanbul-based Eurobank Tekfen AS in April. The acquisition will lower Burgan Bank’s capital adequacy ratio to 14.9 percent from 18 percent once it is completed next month, Eguren said. “By issuing this bond, we expect to reach a capital adequacy ratio of around 17 percent. We plan to continue growing in 2013, 2014.”
Acquisitions and Growth
Burgan Bank, a unit of Kuwait Projects Co., has finalized the due diligence needed to acquire 25 percent of Malta-based FIMBank Plc., Eguren said. Bahrain-based United Gulf Bank, also a unit of Kuwait Projects, is making a joint offer for 12.56 percent of FIMBank, potentially giving the Kipco Group, as Kuwait Projects is known, a 37.56 percent holding.
“Most likely we will even volunteer to go to a higher percentage than this,” Eguren said. “FIMBank is not that big, but they are profitable. We are buying this below book value.” The Maltese bank, which specializes in trade financing, has a presence in 13 countries and is planning to open in China.
Burgan, which has four subsidiaries in Algeria, Iraq, Jordan and Tunisia, saw growth of 26 percent in customer loans in the year to September while those of its local peers grew 3.6 percent, Eguren said, citing central bank data.
“The market is having a consistent behavior with the economy and we have found a way, without changing our risk appetite, to grow much faster,” he said. “This is really how we are building the future.”
Burgan shares rose 2 percent to 520 fils at the close in Kuwait today. The stock has gained 15 percent this year compared with a 0.9 percent rise in the benchmark Kuwait Stock Exchange Index.
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