Bank's shareholders breathe sigh of relief

First Gulf Bank finds itself in a favourable position as it converts a convertible bond into shares.

First Gulf Bank announced the conversion of a Dh3.6 billion bond yesterday, an event many of the company's investors had dreaded. The verdict: it could have been worse.

The bank converted the bond at the original price of Dh28.8 a share, and will issue to bond holders 125 million ordinary shares, which are to be listed on the Abu Dhabi Securities Exchange today.

The bank's share capital will be adjusted from Dh1.38bn to Dh1.5bn. There were concerns among some investors that the conversion would be more punishing to existing shareholders.

"A lot of shareholders were worried … that instead of 125 million new shares, it could have been 200 million," said an analyst who follows the stock. Although the bank's stocks may see initial volatility, investors will be relieved the uncertainty over the conversion is lifted.

The bank's shares fell 3.61 per cent to Dh17.35 yesterday before the bank's announcement of the conversion. First Gulf should remain a steady performer. It ended last year with decent earnings that did not disappoint analysts after a challenging year in the sector.

"First Gulf Bank remains a valuation play for now," said Murad Ansari, a financial analyst at EFG-Hermes. "Growth is likely to remain muted in 2011."

But Mr Ansari added the bank's results for last year showed it was on the right track.

"[First Gulf] managed to reduce their non-performing loans ratio, excluding Dubai World … provisioning costs as a result were much lower than what we were anticipating," he said. "This is a good indication of what 2011 might look like."

However, with almost all of its operations based in the UAE, First Gulf has little exposure to strife in other Middle East markets.

Some caveats remain but the prognosis for the stock is fair. EFG-Hermes also expects moderate loan growth after the flat lending levels seen in the last quarter of last year, but nothing like the deluge of credit seen in the UAE in the past.