• NBK plans KWD137.6 million rights issue at KWD0.4/share NBK’s Board of Directors approved a 6.5% rights issue, last Thursday, at a price of KWD0.4/share. The planned rights issue involves raising proceeds of KWD137.6 million (total shareholders’ equity stood at KWD2,607 million in December 2015) and 343.96 million new shares. The price of the rights issue of KWD0.4 is at a 40% discount to last Thursday’s closing share price of KWD0.67.
• Rights issue not a surprise The announcement of the rights issue does not come as a surprise, as last month NBK received all the necessary approval from regulatory authorities as well as its general assembly to increase the bank’s authorised capital to KWD600 million. While the rights issue does not need to be ratified by the EGM, it still needs some other regulatory approval, and the final timing has not been set. The size of the rights issue of KWD137.6 million is smaller than our previous assumption of KWD150-200 million.
• New capital will add buffers to CET1 ratio; implies small ROE dilution NBK had a CET1 ratio of 13.2% in 2015. This is above the regulatory minimum for NBK of 11.5% by 2016. We estimate that the new capital will add around 1%-pt to NBK’s CET1 ratio, and this is in line with NBK’s focus on maintaining sizeable buffers over regulatory minimums. We estimate that the rights issue will lead to slight ROE dilution of 0.3% in 2016 to 10.87% (from 11.15%) and of 0.6% in 2017 to 11.09% (from 11.64%).
• Adjust FV post recent 5% bonus shares; reiterate Buy We adjust our FV to KWD0.82 to incorporate the recent 5% bonus shares, for which the ex-dividend date was 31 March. NBK remains our top pick in Kuwait banks: it has the strongest loan growth outlook in Kuwait, and its much larger balance sheet versus peers allows it to capture a larger share of the project finance market, where growth is underpinned by government spending.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel