Abu Dhabi Commercial Bank PJSC is said to be in talks with funds to sell 13.5 billion dirhams ($3.7 billion) worth of soured loans, as the emirate’s second-largest lender steps up efforts to clean up its books.
(Bloomberg) — Abu Dhabi Commercial Bank PJSC is said to be in talks with funds to sell 13.5 billion dirhams ($3.7 billion) worth of soured loans, as the emirate’s second-largest lender steps up efforts to clean up its books.
The bank is exploring the sale of a retail portfolio that includes car loans, private and credit-card debt, most of which are held by expatriate workers, people familiar with the matter said. Emirati nationals still owe ADCB — as the bank is known — far more money on average, they added, asking not to be identified because the information is private.
An entity called Lexolent is looking to put together a group of buyers to purchase ADCB’s non-performing loan book, the people said. In addition, Lexolent might set up a debt collection joint venture with the bank and that body will also oversee ADCB’s other bad debts it offloaded and possibly those of peers in Middle East, according to the people. The deliberations are ongoing and may not result in a transaction, two of the people said.
ADCB has “no intention of pursuing a transaction or any business partnership with the named party,” it said in a statement to the Abu Dhabi stock exchange. The bank said it continuously explores opportunities to boost shareholer value and recoveries but that it does “not foresee any further transaction of this nature or any potential related gains materialising this year.”
Representatives for Lexolent declined to comment.
Any disposal of the soured debt would make it the largest such transaction by a domestic bank in the Middle East and North Africa. Foreign workers make up the lion’s share of the population in the United Arab Emirates, where defaulting on loans was deemed a criminal offense until a few years ago. As a result, expatriate debtors at times fled the country to avoid jail.
Establishing a collection agency signals that the market for debt recovery in the region is maturing and could pave the way for similar deals involving international specialists. By involving overseas debt collectors, a domestic bank like ADCB could avoid costly enforcement actions outside the UAE, Bloomberg reported last year.
What Bloomberg Intelligence Says:
The potential sale of $3.7 billion in bad loans is a necessary step to improving Abu Dhabi Commercial Bank’s asset-quality metrics, given a loan downgrade has clouded the bank’s prospects since 2019. The revenue line may get a boost if the transaction price is higher than the provisions management allocated for the loans.
However, it’s harder to say if the deal would cut ADCB’s Stage 3 bad-loan share of 5.6%, given retail legacy loans are likely already written off.
Edmond Christou, BI financials analyst
ADCB this year has already sold a $1.1 billion non-performing, corporate loan book to US hedge fund Davidson Kempner Capital Management LP and debt worth $357 million to a recovery fund led by professional services firm Grant Thornton. That was the first time a UAE bank offloaded distressed debt of that magnitude.
Grant Thornton said at the time that ADCB’s sale indicated “how local banks in the UAE are cleaning up their books to support the growing market while remaining compliant with international regulatory and banking standards.”
Abu Dhabi’s Second-Largest Bank Plans $1 Billion Bad Debt Sale
ADCB’s net income in 2022 surged by nearly a quarter to 6.4 billion dirhams despite an increase in impairment charges to 2.78 billion dirhams. The bank in recent years has been hit hard by some major regional defaults.
–With assistance from Lucca de Paoli.
(Adds ADCB’s denial in fourth paragraph)
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