Commercial Bank of Kuwait has announced plans for a 120 million dinar ($416 million) bond sale that would boost its capital reserves, with the transaction set to close around the end of this month.
The Gulf state’s fifth-largest lender by assets, which is preparing to convert into an Islamic bank, will issue the subordinated bond to boost its Tier 2 – or supplementary – capital, it said on Monday.
CBK’s total capital adequacy ratio, which is a key measure of a bank’s health and includes both Tier 1 – or core – and Tier 2 capital, was 17.66 percent at the end of June, well above the minimum 12 percent set by the country’s regulator.
Banks in the Gulf have much higher capital reserves than lenders in the Western world because of the conservative approach of regulatory authorities.
The bond will have a ten-year lifespan, with an option for the issuer to redeem it after the fifth year, and will be priced at 2.25 percent over the central bank of Kuwait’s discount rate, according to a source with direct knowledge of the deal. The discount rate is now at 2.00 percent.
Order books for CBK’s transaction will open on Tuesday and close on Oct. 30, with the issue set for formal completion on Nov. 6, the source added.
KIPCO Asset Management Co (KAMCO) is the sole lead manager for the bond, which is rated BBB-minus by rating agency Capital Intelligence.
Fellow Kuwaiti lender Burgan Bank raised a capital-boosting bond last month. The $500 million issue with a perpetual tenor enhanced the lender’s Tier 1 ratio.