BURG
BURG`R
BURG`R
Burgan Bank has said that it is planning to issue cKWD100 million in new shares by year-end, upon receiving all regulatory approvals. The price per share has not yet been set. The rights issue has been well flagged by management in the past few months , said EFG - Hermes research unit .
Burgan Bank also raised KWD145 million (USD500 million) in capital last September through a Tier-1 bond (perpetual notes) priced at 7.2%. We expect that KIPCO, Burgan Bank’s majority shareholder with a 57.9% stake, will be a large contributor to the rights issue, although this has not yet been mentioned by management.
New capital will support organic growth and will strengthen CAR ahead of Basel 3: The new capital will support organic growth and will also strengthen the bank’s equity base in order to comply with Basel 3 capital adequacy standards (minimum of 12.5% by year-end 2014 and minimum of 13% by year-end 2015).
Burgan’s capital adequacy ratio according to Basel 2 stood at 16% in June, but it will drop by c250bps-300bps post Basel 3 implementation. Burgan’s management has also expressed in the past its interest in inorganic expansion and Egypt has been highlighted as a potential market, but EFG do not believe this will be an area of focus in the short term.
EFG estimateS c200bps dilution to ROE by 2015 as according to its estimates, the planned rights issue will drive a c200bps reduction in ROE short-term, to c15% in 2015 versus our current forecast of 17.2%. Nevertheless, this would still be the highest level within our Kuwait banks coverage universe, for which it estimates average ROE is 12.5% in 2015.
EFG currently has a Neutral rating on Burgan Bank, with its FV of KWD0.56 implying 3% upside potential to the share price.
Burgan is one of the most diversified banks in Kuwait geographically, however in the short term, Jordan, which is one of the largest country exposures for Burgan, is growing at fairly slow rates, while Turkey is yet to contribute positively to earnings.
EFG also sees precautionary provisions requested by the Central Bank of Kuwait as a key downside risk to earnings in the short term.
Burgan Bank also raised KWD145 million (USD500 million) in capital last September through a Tier-1 bond (perpetual notes) priced at 7.2%. We expect that KIPCO, Burgan Bank’s majority shareholder with a 57.9% stake, will be a large contributor to the rights issue, although this has not yet been mentioned by management.
New capital will support organic growth and will strengthen CAR ahead of Basel 3: The new capital will support organic growth and will also strengthen the bank’s equity base in order to comply with Basel 3 capital adequacy standards (minimum of 12.5% by year-end 2014 and minimum of 13% by year-end 2015).
Burgan’s capital adequacy ratio according to Basel 2 stood at 16% in June, but it will drop by c250bps-300bps post Basel 3 implementation. Burgan’s management has also expressed in the past its interest in inorganic expansion and Egypt has been highlighted as a potential market, but EFG do not believe this will be an area of focus in the short term.
EFG estimateS c200bps dilution to ROE by 2015 as according to its estimates, the planned rights issue will drive a c200bps reduction in ROE short-term, to c15% in 2015 versus our current forecast of 17.2%. Nevertheless, this would still be the highest level within our Kuwait banks coverage universe, for which it estimates average ROE is 12.5% in 2015.
EFG currently has a Neutral rating on Burgan Bank, with its FV of KWD0.56 implying 3% upside potential to the share price.
Burgan is one of the most diversified banks in Kuwait geographically, however in the short term, Jordan, which is one of the largest country exposures for Burgan, is growing at fairly slow rates, while Turkey is yet to contribute positively to earnings.
EFG also sees precautionary provisions requested by the Central Bank of Kuwait as a key downside risk to earnings in the short term.
Source:
Mubasher Exclusive
