CAIRO: Egypt’s Housing Development Bank (HDB) completed a capital increase worth LE 480 million, raising its issued capital to LE 1.15 billion from LE 670 million.
“Simply, the bank had to grow with the market in order to compete,” Fathy El-Sebai Mansour, HDB’s chairman and managing director, said at a conference Monday, adding that the bank will use the money to “expand and strengthen our capacity for further growth.”
In the last four to five years, “all small banks have been driven out of the market through mergers and acquisitions. [Moreover] the new law sets the minimum capital of a bank at LE 500,000 million,” Mansour said.
Investment banks HC Securities and CI Capital worked together to administer the public issuance and the distribution of the securities.
“The increase in the capital of the bank, which started at LE 54 million in 2003 and has now reached LE 1.15 billion, would have not been possible had it not been for the improving financial performance of the bank,” said Hussein Choucri, chairman and managing director of HC Securities and Investment.
“The banks profits have increased 10 times over the last five years,” he added.
In 2010, the bank assets grew 7.5 percent compared to the end of 2009. HDB’s loan portfolio reached LE 5.9 billion at the end of March 2010, an increase of 1.3 percent compared to the end of 2009.
Working with more
One of the main advantages of the capital increase is that it will allow the bank to grant credit and market loans to larger companies.
“Before, the bank could only grant one customer a maximum of LE 188 million. This will rise to LE 450 million following the completion of capital increase and with this increase comes the bank’s ability to negotiate with more important clients,” said Mansour.
The bank’s statement also said that the capital increase will support property rights within the bank increasing the standard of capital, which allows the bank to increase credit limits.
“The capital increase will also make it easier for the bank to comply with Basel II capital adequacy requirements giving the bank an appropriate degree of autonomy on the one hand and maintaining banking stability on the other,” the statement added.
HDB was established as an Egyptian joint stock company in 1979 with an initial authorized capital of LE 3 billion. At the time of its launch, HDB’s key mandate was to finance housing units. The bank conducted mega developments in new urban communities and invested in Egypt’s North coast resorts in the late 1980s.
HDB currently owns companies specialized in real estate and development and mortgage finance, which focus on higher income luxury housing units and compounds. It is also working on a national housing project for Egypt’s low-income segment.
HDB plans to finance new projects in the coming years with the development of lending activity through the marketing and sale of units of new housing projects. “We have very profitable land that is currently being developed and we expect large revenues in the future,” Mansour explained.
“To insure same returns to stockholders in the long run, we have also invested in diversified range of real estate and development firms,” Mansour said, including a stake in the Egypt unit of Dubai-based Damac Holding as well as a stake in Sakan Finance.
The emergence of larger banks with advanced technology, years of banking experience and streamlined administrations, Mansour said, prompted the bank to pursue a more vigorous expansion strategy.
“We have 57 braches now and we want to reach 100 by 2013. We will develop more advanced banking systems and compete with our products both through competitive pricing and quality,” Mansour added.
In a statement, the bank said that the decision for the offering came in light of its “financial strength outstanding performance and high growth rates.”
Securing securities
“The success of any offering is based on the success story of the firm behind it. The bank’s accomplishments make people trust that the bank will be able to accomplish its goals,” said Karim Helal, group CEO of CI Capital Holdings.
“We are proud that two of the biggest investment companies in Egypt have worked together to insure the success of this offering,” added Helal.
The debt crisis in Greece which was accompanied by negative effects on the global stock markets and the subsequent deterioration of the financial markets and investors’ confidence both abroad and in Egypt, unfortunately, coincided with the announcement of the offering, according to the statement by the bank.
“Consider that at the time of the offering the stock market was falling 7 percent with the Greece crisis affecting investors and markets in Egypt and abroad,” Choukri said.
According to the bank’s statement, despite the unfavorable financial context, the offering was covered 1.5 times.
The bank attributed this to the trust in the stability of the bank attracting greater domestic and foreign investment from both new and existing investors. The bank said that it had received more than 1.3 billion requests for subscription mostly from new investors, prompting the bank to allocate each subscriber only 80 percent of the total shares subscribed for increasing the share of individual investors and institutions at the expense of government agencies.
