UAE curbs state access to banks' equity
Dubai, February 21, 2009
The United Arab Emirates Ministry of Finance has amended the terms of its liquidity facility for banks, curbing the state's ability to convert the debt into equity, a report said.
Last year, the ministry launched a 70 billion dirham ($19.06 billion) facility to help banks cope with the financial crisis, of which two tranches, worth 25 billion dirham each, have so far been deposited into the country's banks.
Under the amendment, the government is now able to convert the funds it made available to banks in the form of loans into equity only under certain conditions, Al-Khaleej newspaper said, citing a ministry circular to banks outlining the change.
The conditions include a bank's inability to pay interest on the government funds or settle the principal amount, or failure to uphold the terms of the liquidity facility, Al-Khaleej said.
Banks had been reluctant to utilise the facility as they deemed the clause allowing the state to take stakes in their capital lacked restrictions, said Mohammed Yasin, managing director of Shuaa Securities.
'This amendment imposes conditions onto the conversion into equity. It's now no longer as open as it once was,' Yasin said.
In addition, the amendment gives banks the option to convert into Tier 2 capital the full 50 billion dirham made available to them so far, Al-Khaleej said.
Previously this option existed only for the first 25 billion dirham tranche, injected into UAE banks by the ministry of finance in October, it said.
'The Ministry of Finance has amended the eighth term of the terms allowing banks to convert the funds of the government support (package) as Tier-2 capital, expanding it to encompass all the government funds which were made available to banks ...instead of restricting it to the first tranche,' Al-Khaleej said. - Reuters