Abu Dhabi Commercial bad loan sale may give UAE distressed debt market liftoff
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- 31 Oct 2022
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Bank sales of nonperforming loan portfolios in the United Arab Emirates will become more common as lenders prioritize cleaning up their books and improving regulations increase the attractiveness of such deals to buyers, according to market observers.
Abu Dhabi Commercial Bank PJSC, or ADCB, is selling about $1.1 billion of bad debt, including personal and corporate loans and real estate assets, Bloomberg News reported in September. This would be the largest nonperforming loan, or NPL, portfolio sale of its kind in the UAE, said Jaap Meijer, managing director of research at Dubai-based Arqaam Capital.
Local subsidiaries of international banks have made some moderately sized sales of NPL portfolios, while transactions relating to individual borrowers have been taking place for some time, said James Dervin, managing director of Alvarez & Marsal Middle East.
Yet few of these deals, some of which involved international investment firms, have been made public. One exception was UAE-based asset manager and investment bank SHUAA Capital PSC's January 2021 acquisition of 1.13 billion UAE dirhams of debt owed by Stanford Marine Group to various lenders.
"It's not a deep market and trades are few and far between, which is why the ADCB sale is of such significance," said Michael Rainey, partner at law firm King & Spalding in Dubai.
Loan-book cleanse
ADCB's mooted loan sale will benefit the bank by giving it "a lower headline NPL number without a negative impact on the income statement, as the loans had been either fully written off or are fully provisioned on a net basis," said Meijer. It will also free up management time to drive the business forward instead of dealing with legacy positions, as ADCB was hit by several corporate failures over recent years, he said.
The most notable of these failures was Abu Dhabi's NMC Health PLC, which in 2020 admitted to having made a "significant misrepresentation of its debt position in its financial accounts," according to ADCB's annual report. The bank supported a motion to place NMC Health into administration and attributed the company and associated entities for much of its impairments. ADCB declined a request for comment. Read More...
