First Gulf Bank to issue bonus stock

First Gulf Bank's board recommended distributing shares purchased under the buyback program as bonus stock to its shareholders

First Gulf Bank, Abu Dhabi's third-biggest lender by assets, plans to distribute 75 million shares as bonus stock. It follows a two-year share buy-back programme.

The programme, which has been in place since November 2008, was initially introduced to help support the valuation of the company after the financial crisis and the decline in local stock markets, said Abdulwahed Juma, the head of corporate affairs at the bank.

Last year, the bank bought back 54 million shares, which had a small negative impact on its capital ratios, while enhancing the earnings per share by a few percentage points, said Jaap Meijer, the head of the banking research team at Alembic HC Securities in Dubai.

He has an "overweight" rating on the bank with a price target of Dh23.30 a share. Shares of First Gulf Bank traded 0.2 per cent higher to close at Dh18.50 on the Abu Dhabi Securities Exchange General Index yesterday. According to Securities and Commodities Authority regulations, a publicly listed company can keep share buy-backs as treasury shares and cancel or sell them after a period.

"The bonus shares distribution represents roughly 7.5 per cent additional shares to be handed out to shareholders," Mr Meijer said. "Instead of creating new shares, it can use its treasury shares. The bonus issuance will not impact the income statement or capital position of the bank." Separately, JP Morgan reiterated that First Gulf Bank remained one of its top picks among UAE lenders.

The bank decided to postpone a US$500 million (Dh1.83 billion) bond issuance in November, citing market volatility. The proposed issuance was a three-year dated bond that would have paid a coupon of 4 per cent, according to the prospectus.