Bahrain-based Gulf International Bank (GIB) has announced the issue of a US$ 400 million 10-year subordinated floating rate note (FRN). This is a groundbreaking transaction representing the very first subordinated bond issue by a Middle Eastern financial institution.
The subordinated FRN has a coupon of 70 basis points over three-month LIBOR and a tenor of 10 years with a call option at the end of 5 years. It has been rated Baa1/BBB+/BBB by Moody’s, Standard & Poor’s and Fitch respectively and is listed on the London Stock Exchange. The subordinated FRN has also been approved for inclusion in Tier 2 regulatory capital by the bank’s regulator, the Bahrain Monetary Agency. The bond issue was lead managed by Barclays Capital and Citigroup.
The size of the bond issue was increased from US$ 300 million to US$ 400 million following exceptionally high demand from local and international investors. The issue was almost four times oversubscribed.
Dr. Khaled M. Al-Fayez, GIB’s Chief Executive Officer, commented: “Gulf International Bank is the first financial institution in the Middle East to issue a Tier 2 subordinated note. We are delighted with the overwhelming response to this landmark transaction. Following a successful road show in Europe, the order book grew to a total of US$1.1 billion in only one week after the launch of the bond issue. In view of the exceptionally high demand, the size of the bond issue was increased to US$400 million. At the same time, we were able to reduce the pricing from the initial price guidance of LIBOR plus 75 to 80 basis points down to a coupon of LIBOR plus 70 basis points.”
Dr. Al-Fayez explained that the subordinated FRN will further enhance the bank’s regulatory capital base, thereby facilitating planned asset growth. It will also further improve the bank’s liquidity profile. GIB has raised $1.2 billion of new term financing since the beginning of 2005.
Dr. Al-Fayez added: “We were also particularly pleased with the distribution of the transaction. Over three quarters of the investors were from outside the region, representing institutional investors from Europe, the United States and Asia. Many of these investors are new to both GIB and the region. We believe this is testimony to the confidence placed by the international financial community in the strength and capacity of Gulf International Bank. It also reflects the bank’s positive ratings development. During 2005, GIB’s credit ratings have been upgraded by Standard & Poor’s (to A-), Moody’s (to A3) and Capital Intelligence (to A). As explained by the rating agencies, the rating upgrades reflect GIB’s strong GCC merchant banking franchise.”
This inaugural subordinated debt issue reflects GIB’s pioneering role in the development of the region’s capital markets. In 2002, GIB was the first Middle Eastern financial institution to issue a senior FRN, with a US$ 325 million 5-year floating rate note. GIB’s regional leadership role in capital raising was reaffirmed in April 2005 when the bank finalised an US$ 800 million syndicated 5-year term deposit facility. This was the largest syndicated term finance facility raised by a regional financial institution.
GIB is a leading merchant bank in the Middle East with its principal focus on the GCC. It is one of the largest regional banks in the region, with more than $20 billion of its own assets and in excess of $16 billion of clients’ assets under management. With a proven track record spanning more than 28 years, GIB provides client-led, innovative financial products and services to a wide customer base in the region, including investment banking, asset management, project and structured finance and Islamic banking.
