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Abu Dhabi Bank in talks to sell $3.7 billion in bad debt

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(Bloomberg) – Abu Dhabi commercial bank PJSC is said to be in talks with funds to sell bad loans worth 13.5 billion dirhams ($3.7 billion), as the emirate’s second-largest lender steps up efforts to clean up its books.

Most reads come from Bloomberg

The bank is exploring the sale of a retail portfolio that includes auto loans, personal and credit card debt, most of which is held by expatriate staff, the people said. UAE nationals still owe significantly more money on average to ADCB, the bank as they are known, they added, asking not to be identified because the information is private.

An entity called Lexolent is seeking to assemble a group of buyers for ADCB’s non-performing loan book, the people said. In addition, Lexolent may form a debt-collection joint venture with the bank, which will also oversee other bad debts offloaded by ADCB, and possibly that of its Middle Eastern peers, according to people familiar with the matter. Discussions are ongoing and a deal may not be reached, two of the people said.

In a statement to the Abu Dhabi Securities Exchange, ADCB said it had “no intention of entering into a transaction or any business partnership with the named parties”. The bank said it was continuously exploring opportunities to enhance shareholder value and recovery, but it “does not anticipate any further transactions of this nature or any potential related proceeds this year.”

A representative for Lexolent declined to comment.

Any disposal of distressed debt would be the largest such deal for a MENA domestic bank. Foreign workers make up the vast majority of the UAE’s population, and defaulting on loans was considered a criminal offense until a few years ago. As a result, foreign debtors sometimes flee the country to avoid jail time.

The establishment of a collection agency signals a maturing debt recovery market in the region and could pave the way for similar deals involving international specialists. By involving overseas debt collectors, domestic banks like ADCB can avoid costly enforcement actions outside the UAE, Bloomberg reported last year.

Here’s what Bloomberg Intelligence says:

The potential sale of USD 3.7 billion of non-performing loans is a necessary step to improve Abu Dhabi Commercial Bank’s asset quality metrics, given that loan downgrades since 2019 have clouded the bank’s outlook. If the transaction price is higher than the reserve management allocated for the loan.

However, given that retail legacy loans may have been written off, it is hard to say whether the deal will reduce ADCB’s 5.6% NPL share in Phase 3.

Edmond Christou, Financial Analyst, BI

ADCB has sold $1.1 billion of its bad corporate loan book this year to U.S. hedge fund Davidson Kempner Capital Management LP and $357 million worth of debt to a recovery fund led by professional services firm Grant Thornton. This is the first time a UAE bank has sold distressed debt of this magnitude.

Grant Thornton said at the time that the sale of ADCB demonstrated “how local banks in the UAE can clean up their books to support a growing market, while remaining compliant with international regulatory and banking standards.”

Abu Dhabi’s second-largest bank plans to sell $1 billion in bad debt

ADCB’s 2022 net income soared by almost a quarter to AED6.4 billion despite an increase in impairment charges to AED2.78 billion. The bank has been hit hard by defaults in some major regions in recent years.

– With the assistance of Lucca de Paoli.

(add ADCB’s rejection in fourth paragraph)

Most reads come from Bloomberg Businessweek

©2023 Bloomberg Intelligence

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