By Santhosh V Perumal
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Commercial Bank, with assets in excess of QR105bn, is all set to tap market to raise as much as QR2bn through Tier I notes, the second lender to do so in the country.
The hybrid capital mop-up - which is through private placement and likely to hit the market by year end - comes as part of the bank’s efforts to bolster the capital base and in view of the proposed Basel III norms.
“The instruments will be issued in the amount of QR2bn in order to strengthen the capital adequacy ratio (CAR),” Commercial Bank chairman Abdullah bin Khalifa al-Attiyah told shareholders at the extra-ordinary general assembly, which approved the issue.
The proceeds from the instrument will be used by the bank, which has 29 full-service branches and 151 ATMs, for general corporate purposes.
Highlighting that the CAR will go up by 200 basis points; Commercial Bank group CEO Andrew C Stevens said, “We will hope it (CAR) to be, at the end of this issue, well above 14%, which is very comfortable.”
These instruments will be treated as equity instruments with a fixed return and will qualify as additional Tier I capital.
The investors in this issue would be most likely Qatari government related entities, Stevens said, adding the capital boost will bolster the growth of the bank, which is now consolidating the majority acquisition of Turkish Alternatifbank.
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.
Asked about the interest rate to be paid by the bank, Stevens said the bank has still not finalised the coupon.
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. These returns are discretionary and non-cumulative.
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.
Asked whether the issue will be through a special purpose vehicle, Stevens said the bank has the option of issuing those through CBQ Finance, which is an offshore-registered company.
Since the issue is denominated in local currency, he said, chances are that it would be straight away done by the bank itself. “We are yet to decide,” he added.
To a query whether the market has sufficient appetite for these instruments, he said there is “pretty much liquidity”.
Asked whether any more acquisitions were there in the pipeline, Stevens said the bank recently bought 74.3% stake in the mid-size Turkish bank, which is Turkey’s 17th biggest lender by assets.
“We need to consolidate that transaction. We are working very hard with the previous owners and new management to put in place a growth path for 2014-16,” he said, adding the board is slated to meet early next month to finalise the plan.
“We expect to see good growth in the coming years and we are very bullish about our ability to transform that bank’s performance,” he said.