Doha Bank to raise QR2bn through private placement of Tier I note

By Santhosh V Perumal

Business Reporter

Doha Bank, which is aiming 15%-20% asset growth in the next four to five years, is raising up to QR2bn from the market through a private placement of Tier I note, the first of its kind in Qatar.

The capital mop up, which is likely to hit the market either by year end or by first quarter of 2014, comes as part of the bank’s efforts to significantly shore up its capital base and in view of the Basel III norms.

“We are planning to issue Tier I capital instruments amounting to QR2bn,” Doha Bank chairman Sheikh Fahad bin Mohamad bin Jabor al-Thani told shareholders at an extraordinary general assembly, which approved the issue.

These instruments will be treated as equity instruments with a fixed return and will qualify as additional Tier I capital, he said.

The issue, to be managed by a special purpose vehicle (SPV), would be undertaken through private placements to Qatari institutions, and the maturity would be perpetual, he added.

The investors in this issue would be most likely Qatari government related entities or other institutional investors from Qatar, the bank said.

Explaining the rationale behind going for Tier I note, which is a value-added capital and a world-over-tested instrument, Doha Bank group CEO R Seetharaman said it will increase the capital adequacy ratio (CAR) to 19.1% from the present 13.7%.

“We see 15% to 20% expansion in assets over the next 4-5 years,” he said, adding the plan (of issuing Tier I note) is to expand the capital and support the overall momentum.

Asked why Tier I note was chosen over other instruments such as EMTN (Euro Medium Term Note); he said EMTN has a different connotation as far as capital adequacy was concerned and “it makes sense (to go for Tier I note) when you have to comply with Basel III.”

The bank, which at present has 10% of assets (funded and non-funded) from overseas operations, is expecting a bigger slice as it has the capacity to build up in view of the new 19% CAR, according to him.

Doha Bank, whose operations span across 15 countries and is on an organic path in domestic market, has recently opened offices in Sydney, Toronto, Hong Kong and Sharjah.

The Tier I note will carry a fixed interest rate and the issuer will pay the return to the holder of the instruments on specified agreed dates during the first six years, Doha Bank said.

Asked about the interest rate to be paid by the bank, Seetharaman said: “we are still working out the details and it will be in line with overall credit default swap.”

After the initial six years, the return rate would be reset according to a “pre-agreed” pricing adjustment mechanism, taking into account the prevalent reference rate at that time.

The Tier I note will rank junior to all other senior debt but will rank above claims on ordinary shares (common equity) of the issuer for these instruments, the bank said.

On the SPV, it said it would be Doha Finance Limited, which was established in the Cayman Island by Doha Bank for its bond issuance programme.

However, Seetharaman said details are being worked out with the local regulatory authority.

Asked whether any bond issue was in the pipeline, he said the bank will build up subordinate and senior subordinate debt in parallel. “Debt and equity will come in tandem as and when the growth prospects come in,” he said, adding Doha Bank is expanding its corporate and contract financing in view of the recent projects announced by the government.

Iran deal will augur well for capital markets, banking sector, says Seetharaman

A historic breakthrough in curbing the Iranian nuclear programme is all set to considerably lessen the geopolitical risks in the Gulf and wider Middle East region and will augur well for the capital markets and banking sector, according to Doha Bank group CEO R Seetharaman.

“It’s good that geopolitical risk is getting minimised with G6 coming together with Iran,” he said, referring to the interim pact in Geneva between Iran and the US, France, Germany, Britain, China and Russia on Tehran’s curbing nuclear programme in exchange for initial sanctions relief.

Highlighting that the market is softening now; he said “we see credit default swaps will soften further with this new alignment.”

It (Iranian deal) will not only stimulate the market in overall capital inflow but will also stimulate the equity market, he said, adding MSCI upgrade is an additional advantage for Qatar and the UAE.

The Geneva deal releases just over $4bn in Iranian oil sales revenue from frozen accounts, and suspends restrictions on the country’s trade in gold, petrochemicals, cars and plane parts, according to reports.