• Disclosure on ADX website implies ADIB opening FOL to 25% ADIB is amending its Articles of Association, which could pave way for foreigners to invest in the stock. The draft needs to be approved by shareholders on 21 April and may require approval from local authorities. While this could trigger short-term interest in the stock, ADIB’s investment case is not compelling in our view. While it offers a liquid balance sheet (LDR: ADIB - 83%; sector - 94%), its capitalisation is relatively stretched (CET1 ratio of 9.3%), its Egyptian associate ADIB Egypt is likely to be an overhang on profitability in the near term (devaluation of EGP) and its relatively large exposure to retail (c55% of loan book) and SME exposure (4% of loans) pose credit quality risk. ADIB trades at 2016e P/E of 9.9x and P/B of 1.5x and we expect it to generate c16% ROE. We reiterate our Neutral rating on ADIB.
• USD100mn flows; EM status depends on implementation and liquidity ADIB’s market cap is large enough for EM inclusion, but it fails MSCI’s free float market cap requirement (0.25 FIF) by 17%. This amendment still needs shareholder approval (21 April) and official implementation, hence we rule out a May inclusion. It meets MSCI & FTSE liquidity tests YTD, but fails on 12-month basis. A 2017 inclusion, FTSE Mar (USD24mn), and MSCI May (USD80mn) is highly likely if implementation occurs in 2016. A Nov 2016 MSCI inclusion is possible but needs i) 4Q15 to be omitted from the liquidity testing (which is possible as per MSCI rules, but not certain); and ii) implementation before July so liquidity is tested when FIF is not zero.  
• ADIB: a retail bank focused on capital accretion ADIB is a medium-sized bank with a loan market share of 6.0% which is slightly below DIB’s 7%. The bank is retail focused with the segment accounting for 59% of 2015 revenue. Loan book grew at a robust pace of c20% over 2013 and 2014, stretching ADIB’s capital position (CET1 ratio dropped to 8% in 2014 from 11% in 2012). Management retracted from growth in 2015 and reduced its payout to 40% from 50% in 2013. The bank also issued AED500 mn worth of rights in 3Q15 to boost its capital base.

Shabbir Malik
Mohamad Al Hajj
Murad Ansari