UPDATE 4-Abu Dhabi helps Dubai again with bank bailout

Wed Feb 15, 2012 1:36pm EST

Related Topics

* ENBD says got UAE govt loan to help with Dubai Bank deal

* Dubai's largest lender's provisioning up 425 pct in Q4

* Q4 net profit down 62 percent to 152 million dirhams (Edits)

By David French and Mirna Sleiman

DUBAI, Feb 15 (Reuters) - The acquisition of a struggling Islamic lender by Dubai's largest bank, Emirates NBD , was bankrolled in part by Abu Dhabi, which helped bail out Dubai over two years ago when it faced a debt crisis.

ENBD, 55.6-percent state owned through the Investment Corporation of Dubai, was ordered by Dubai's ruler in October to take over loss-making Dubai Bank, which had been rescued by the emirate's government earlier in 2011.

ENBD, whose fourth-quarter results were hit by its exposure to Dubai-linked entities, said on Wednesday the United Arab Emirates' (UAE) finance ministry gave it a 2.8-billion dirhams ($762 million), eight-year loan at below market rates to facilitate the deal.

"We received a liquidity injection from the UAE ministry of finance," Surya Subramanian, ENBD's chief financial officer, said on a conference call. "The Dubai Bank acquisition had the support of both Dubai and Abu Dhabi governments."

The support is a further sign that Abu Dhabi, which sits on 10 percent of global oil reserves, accounts for 90 percent of UAE oil output, and is the biggest contributor to the UAE treasury, will stand behind its debt-ridden neighbour.

Dubai rattled global markets in 2009 when it requested a standstill on $25 billion in debt at flagship conglomerate Dubai World in the wake of a property collapse. Abu Dhabi rode to Dubai's rescue with a last-minute bailout which helped it avert default on an Islamic bond.

As part of the Dubai Bank transaction, Dubai's government has provided ENBD a 768-million dirham guarantee over a period of seven years against losses.

"The issue is not about who pushed for it, whether it was Dubai or Abu Dhabi, but whether those guarantees will be enough," said a Dubai-based fund manager who asked not to be identified.

ENBD had an Islamic arm, Emirates Islamic Bank, prior to the Dubai Bank takeover. Rick Pudner, the bank's CEO, said on the call there had been no final decision on whether the two would merge, with synergies still being evaluated. An announcement on the future structure would be made in the near future, he added.

Abu Dhabi's participation in a bailout at its glitzier neighbour comes just over two years after it lent Dubai $10 billion. The UAE central bank had earlier in 2009 bought up $10 billion of Dubai bonds.

ENBD PROFIT SLUMPS

ENBD said its fourth-quarter net profit fell 62 percent to 152 million dirhams as provisions weighed heavily for the second consecutive quarter. Two analysts had forecast profit of 114 million dirhams and 230.3 million dirhams.

It declined to specify the nature of the provisions but said there were no profit-and-loss implications from the Dubai Bank deal.

Impairment allowances jumped 425 percent in the quarter to 1.06 billion dirhams, while total impairments for 2011 stood at 4.98 billion dirhams, up 56 percent.

ENBD had warned in October - following a 59-percent drop in third-quarter profits on provisioning against government-linked debt exposure - that its final quarter numbers were likely to be hit by further impairment charges.

The 950 million dirhams provision made in that quarter against Dubai Group - part of Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum's personal investment vehicle Dubai Holding - could be revised, Ben Franz-Marwick, head of investor relations, said, depending on the outcome of final negotiations.

Dubai's government walked away from the firm's $10 billion restructuring talks, dashing hopes for a state-backed rescue, sources told Reuters earlier this month.

ENBD maintained its non-performing loan forecast for 2012 and 2013 - 14-15 percent this year, rising to 15-16 percent next year - and Subramanian said it was too early to tell how the year would turn out in terms of provisioning, although he added the global economic outlook remained challenging.

Net profit for 2011 rose 6 percent to 2.48 billion dirhams compared to 2.34 billion dirhams in 2010.

ENBD wrote down its investment in developer Union Properties by a further 750 million dirhams during the course of 2011.

Union Properties, in which ENBD has a 47.6-percent stake, sealed a 3.8-billion-dirhams debt deal with the bank, its chief executive told a local paper in January, with 1.1 billion of assets transferred to the bank and 2.7 billion dirhams of debt extended for five years.

ENBD set a dividend of 20 percent for 2011. Its shares closed up 0.7 percent on the Dubai index

($1 = 3.6730 UAE dirhams) (Editing by Amran Abocar, Sitaraman Shankar and Mark Potter)

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