Dubai; Dubai Islamic Bank (DIB) on Sunday announced the very successful raising of capital through a rights issuance amounting to Dh3.2 billion. The issuance which saw a tremendous investor interest was significantly oversubscribed receiving total subscription of nearly Dh9 billion.
The rights issue will increase the share capital of the bank from Dh3.95 billion to Dh4.94 billion, through the issuance of 988,437,777 new shares.
“The exceptionally high take-up of the rights issuance is a very strong signal of the confidence from the market towards Dubai Islamic Bank, its Board of Directors and management,” said Mohammad Ebrahim Al Shaibani, Director-General of the Ruler’s Court of Dubai and Chairman of Dubai Islamic Bank.
Rating agency Moody’s said this capital increase is credit positive for DIB because it replenishes reserves and enhances loss-absorption buffers of the UAE’s largest Islamic bank after a period of high growth during 2012-15 and will improve the bank’s liquidity after a period of decline.
“The timing of this rights issuance is critical as it will enable us to continue our drive to advance incremental business through deeper penetration of existing and new wholesale segments as the bank stays on its course to gain greater market share within UAE,” said Dr Adnan Chilwan, Dubai Islamic Bank Group Chief Executive Officer.
The increased capital through the rights issue will allow the bank to implement its expansion plans whilst ensuring it to continue to meet the regulatory requirements under the capital and liquidity guidelines laid down by the UAE Central Bank.
Capital metrics
The additional capital is expected to support the bank’s solvency in the context of continued balance sheet expansion. The bank’s financing growth increased at a compound annual growth rate of 21 per cent during 2012-15, well above the UAE average of approximately 8 per cent, and had begun eroding DIB’s capital metrics, leading to a drop of almost 5 per cent since 2013, according to Moody’s.
“We expect credit growth to decline to 10 per cent -15 per cent in 2016 from around 30 per cent in 2015. This slowdown in growth, when combined with the capital increase, will support strong and stable capital buffers over the next 12-18months, which will provide the bank a considerably stronger buffer to absorb unexpected losses,” said Nitish Bhojnagarwala, an analyst at Moody’s.
Beyond strengthening its capital base, the rights issue will improve DIB’s liquidity, which has been weakening since 2013 as a result of its higher-than-average credit growth. The bank’s stock of liquid assets declined to 20 per cent of total assets as of December 2015 from 35 per cent as of December 2013. The share premium from the rights issue will add Dh2.2 billion cash to the balance sheet that in turn, will push up liquid assets to around 21.3 per cent based on year-end 2015 numbers and reverse the decline in liquid assets, according to Moody’s.
