Burgan Bank has sent a release to the Kuwait Stock Exchange stating that it has received central bank approval for a rights issue of up to KWD62mn. This follows Burgan CEO’s comments in the latest earnings call a couple of weeks ago (key highlights of the call are in the e-mail below), when management first commented on their plans to raise common equity. Management said they were aiming to complete the rights issue by the end of June.
 
The release states that Burgan plans to increase paid-in capital to up to KWD250mn from KWD226mn, which implies issuing up to 241 mn new shares (par value per share is KWD0.1). Burgan Bank has not yet disclosed the pricing of the rights issue, but as it is usually the case for Kuwait banks, it will be at a discount to the current share price. 
 
As we had highlighted in our previous research on Burgan, the bank’s common equity tier-1 ratio has been tight over the past year, and as a result loan growth has underperformed other Kuwait banks. The new capital will give Burgan Bank room to benefit from credit growth opportunities in Kuwait (govt investment spending) and in Burgan’s key geographies (subsidiaries in Algeria and Turkey growing by double-digits in local currency in 1Q18). We estimate that KWD62mn in fresh capital will add c110bps to its common equity tier-1 ratio to reach  c12%, or 150bps above the minimum required.