Burgan Bank successfully completes KD100mn subordinated bond issue

Burgan Bank has announced the successful completion of a KD 100 million (US$ 356 million) Lower Tier II Subordinated Bond Issue. The Bond marks the first KD-denominated Lower Tier II (LT2) subordinated bond, largest private sector KD issuance and longest tenor in Kuwaiti market to be issued by a Kuwaiti bank. KIPCO Asset Management Company (KAMCO) and Watani Investment Company (NBK Capital) jointly managed the bond issuance.

The ten-year subordinated LT2 bond, callable after year five upon receipt of regulatory approvals, was issued in fixed and floating rate tranches. In the first five years, the fixed rate bonds pay investors a coupon of 5.65% annually, while the floating rate bond pays investors a coupon of 3.90% over the Central Bank of Kuwait discount rate, capped at 6.65% annually. Should Burgan Bank decide not to exercise the call option after 5 years of issuance, the coupon rate on both tranches will increase by 0.25%. The fixed rate bond would then pay 5.90% annually, and the floating rate bond then pay investors a coupon of 4.15% over the Central Bank of Kuwait discount rate, capped at 6.90% annually. The bonds were issued at par and will pay coupons semiannually in arrears. The bond is rated BBB+ by Capital Intelligence.

The proceeds of the bond will be used for further supporting the Bank’s capital, especially after acquiring EuroBank Tekfen. Burgan Bank continues its strategy of raising funds from the debt capital markets to strengthen its capital base, diversify its investor base and provide financial flexibility to the bank. The bank maintains a proven track record of raising financing from global bond markets. The Bank last went to market in September 2010 raising a US$ 400 million, 10-year bond. Burgan is also rated BBB+ by Standard & Poor’s and Baa1 by Moody’s.

Commenting on the transaction, Mr. Majed Essa AL Ajeel, Burgan Bank Chairman, said: “Burgan Bank is very pleased to add this successful transaction to its recent achievements. This bond will enhance the capitalization of Burgan Bank and will enable its Capital Adequacy Ratio to reach 17.5% after the Eurobank Tekfen acquisition in Turkey, well above the Central Bank of Kuwait’s 12% requirement.

“This is a landmark transaction, not only for Burgan Bank, but also for the development of the local debt capital markets by issuing the bond with the largest and longest tenor to date. Since the onset of the global economic crisis, Kuwait’s bond market has been starved of quality bond offerings, so it is crucial that local banks help to stimulate supply. We strongly believe that a fully functioning and vibrant local bond market is a key element in the development of Kuwait’s private sector, in line with the plan of developing Kuwait into a key financial center in the region”

“We would like to thank the Central Bank of Kuwait, Kuwait Capital Markets Authority, and our joint lead managers – KAMCO and NBK Capital – for their assistance and support.”

Mr. Salah Y. Al-Fulaij, CEO of NBK Capital stated that: “The issuance is an important one as it signals a milestone in the development of the local debt capital markets. Investors now have long term local currency securities to consider as part of their investment universe. Furthermore, we are pleased to support Burgan Bank in its expansion initiatives. The success of this transaction could not have happened without the coordinated and efficient effort of the Central Bank of Kuwait and Capital Markets Authority and the continued support of our investor base”.

On the same note, Mr. Faisal M. Sarkhou, KAMCO’s Acting CEO added: “We are proud to have played a leading role in such a momentous financial milestone, and we expect that this issuance will increase overall confidence in the Kuwaiti economy and investment banking sector especially. We at KAMCO have a firm interest in the development and support of the local bond market which in turn will be a key element in the development of the Kuwaiti economy and private sector.”

“Finally I would like to extend my gratitude to all of our subscribers for their help in making the issuance a success, as well to the governmental institutions and all other companies that have provided support to develop the local bond issuance market.”