KEY THEMES
Yesterday, Abu Dhabi Islamic Bank’s [ADIB] BoD has approved the suggestion to raise ADIB’s paid-in capital by EGP2bn through a cash capital increase, at a par value of EGP10/share, pending shareholders’ approval. The capital increase will result in raising the bank’s outstanding shares from 200mn shares to a total of 400mn shares, thus doubling its outstanding shares.
This capital increase is aimed for two primary reasons. First, to end quite a long saga in relation to the destiny of the amount paid under capital increase (i.e. EGP1.86bn) in ADIB’s book value of equity. Second, it is a pre step to comply with the minimum paid capital requirements previously determined by the new banking law. Hence, we believe a subsequent bonus shares distribution will follow the cash capital increase, in order to reach the EGP5bn minimum required.
Now, understandably, ADIB share price tumbled yesterday by c.18.3%, as investors tend to react negatively to any capital increase attempts. We note that, c.93% of the capital increase proceeds are already in the bank’s book value of equity, it’s just that there are no shares issued against them yet. Shareholders, apart from Abu Dhabi Islamic Bank PJSC [ADX: ADIB], will subscribe for c.EGP1bn. However, most of the proceeds will be used to pay back ADX: ADIB, resulting in a fresh capital injection of only c.EGP139mn.
The completion of the aforementioned capital increase will have a minimal impact on our valuation. We valued ADIB considering a total number of outstanding shares of 400mn shares, taking into consideration the potential cash capital increase. While we understand that the news will represent a short-term tactical overhang on ADIB, we continue to share a positive view on the bank’s growth outlook and decent valuation gap. We remind you that we have an overweight recommendation on ADIB, with a 12MPT of EGP21.7/share (ETR+80.5%).