Abu Dhabi injects Dh16 billion into five banks

Dubai: The Government of Abu Dhabi on Wednesday announced injection of Dh16 billion into banks based in the capital such as Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, First Gulf Bank, National Bank of Abu Dhabi and Union National Bank.

"Given current global economic conditions, the government believes that this strategic initiative is an appropriate and proactive response to ensure that the strong confidence in Abu Dhabi's financial institutions is further enhanced," the Department of Finance of the Government of Abu Dhabi said yesterday.

"The government views this capital injection into the banking system as an important step to allow Abu Dhabi financial institutions to remain strong and well-capitalised compared to international peers, and fulfil their role in achieving the government's vision for the Abu Dhabi economy," said Hamad Al Hurr Al Suwaidi, Member of Executive Council and Undersecretary of the department.

Under the initiative, the government will subscribe for Tier I capital notes issued by each of the above financial institutions. The notes will be non-voting, non-cumulative perpetual securities, and will be callable subject to certain conditions.

JPMorgan acted as structurer and arranger of the notes, with Clifford Chance providing legal advice to the government JPMorgan.

The infusion is not in the form of direct equity acquisition. Although it is structured like a debt instrument, banking sector analysts said the instrument is similar to a preferred stock issue.

The notes will bear interest at a fixed rate of six per cent annum, payable semi-annually for a period of five years, and thereafter at a floating rate.

"The move is very significant for the UAE's banking sector. It is in the right direction and gives the banking sector and the economy a very positive signal," said Joe Kawkabani, managing director, asset management, Algebra Capital.

"This confidence building measure& is a strong message to the financial services industry across the globe and is heartily welcomed," said Abdul Hamid Saeed, Managing Director of First Gulf Bank.

The injection comes in addition to Dh120 billion of emergency funding facilities launched by the UAE central bank and finance ministry in the fourth quarter of last year.

Will this help the banks and the private sector? What else could the government do to help pick up the market?

It's late, but on time.
Farhaj
Abu Dhabi,UAE
Posted: February 05, 2009, 09:24

Of course, it's a great relief for the both government and private sector, since banks play a major role in building the economy. There should be some control over the banks in lending loans, also the banks should maintain a well planned future forecast of the growing economy. The authorities should have a clear view of demand and supply in a steady manner.
Justin George
Abu Dhabi,UAE
Posted: February 05, 2009, 03:25