Middle East FX, Kuwait, April 24th 2025 ,
What another capital increase in November 2023 can teach us !
Welcome to MENA MARKET LAB !
We aim here to bring you regular updates on factors and events impacting financial markets in the Middle East and North Africa region with an accent on foreign exchange and rates.
We also aim to bring reflections on certain topics and subjects, close to recent events, which we think are worth stopping on .
Thank you for your attention !
What another capital increase in November 2023 can teach us !
Short cuts ! It’s not because one doesn’t agree with what the Kremlin and Putin are doing in Ukraine that one has to dislike or be anti-Russian. One could argue that they should or could do more to oppose but if just mimicking holding an invisible protest sign lands you in jail for 5 years, think twice. Many in the West high sphere are presenting a simple fallacious inference :if you disagree with Israel’s policies ( In Gaza, West Bank ++), you are anti-Israel, then you are anti-Zionist, then you are antisemite. You can be all or none or a combination . Non-inclusive, non-exclusive. But thanks to good lobbying and pressure, the ADL and the AJC postulate that you have to be antisemite to be any of the one above. So the debate is censored .And it opens the door to deportation and jail.
Kuwait ,
From the prospectus of Warba Bank for their capital share increase,
· The total issuance price will be 200 fils.
· Closing of Warba’s share price today is 223 fils.
· The first subscription period ending today is for eligible shareholders and holders of pre-emption rights. The total size of the capital increase is 436mn KD.
· Should not all the shares be subscribed, a second subscription window will be open from the 1st of May to the 12th of May open to the public.
· Word on the street is that it is doubtful it will get to the second window .
· From early January 2025 , when Warba Bank obtained the approval of the Central Bank, the share price rose from 185 fils to around 220 rather fast and then fluctuated between a low back to 185 , thanks to “ Liberation Day “ and 225.
· So most likely existing shareholders used all their rights and subscribed for more.
· Million dollar question of course is “ how much is more”!
· Allocation will be announced within 5 business days of the end of the two subscription windows. So for the first one, latest next Thursday, May 2nd.
· Extra funds to be returned within 5 business days of the allocation. So up to 7th of May.
Market wise,
· The spot Kwd has recovered from the lows since Tuesday when it touched 0.30570 : it is now 0.30655 mid . But the $ has rebounded between 1 and 1.5 % between the different currencies of the basket.
· In reality, it hasn’t really moved : Tuesday, the spot was dealing 50 fx pips below the official fix . Today it is on Par with the fix but the gap basket – fixing price has narrowed by 40 fx pips ( from +230 to +190, give or take 5 pips ). All depends what one does with the hedges.
· Now it seems that a few local banks got hold of sizable deposits value today and hit the markets, both cash and FX.
· Take a look below : comparison between KIBOR, the Central Bank’s official rates and the largest local bank’s deposit grid.
· For the record, as published this morning, yesterday Kuwait Overnight interest average index was 2.13 % for a volume of 350mn KD.
· So positive forward points ought to be attractive if you have the cash at hands.
· One month FX at +10 is about 40 bps above $ rate ; 1 month $ cash for European names is 4.40 % mid and usually 30/40 bps higher for regional names.
· So yes one has to do the cooking but 40 bps above $ is better than 60 bps below as it was earlier this week.
· Hard to gauge how much went through as the O/N FX market is not very deep.
· But those flows have sent the FX forward curve right back where it started the week with the 1 year at -180 mid from opening today -115 mid.
· And we are a week away, at most, from the 1st allocation and another week at most from funds being returned !
In November 2023, Gulf Bank did a capital increase of 60mn KD : it was 7 times oversubscribed. Warba Bank’s is 436mn KD !
Looking at a graph at the time ( thank you for sharing ) , in the month before the closing of the subscription period ( all taken by eligible shareholders ) , the 3month rallied from -150 to -60. From the end of the subscription, it fell for a few sessions to -80. After the share allocation, the market fell for 5 or 6 sessions in a row to -120 and when the excess cash was returned it fell further another 5 or 6 sessions to -180. It then took more than 6 weeks to bounce back up to -100.
Interesting to note that at that time, the share price of Gulf Bank and the issuance offer were similar ( 230 fils ).
What to learn :
· Warba Bank’s capital increase is 7 times bigger.
· We can’t know how many times over-subscribed it is but making a very prudent guess of two, means 436mn KD will return to the markets as in 2023 with Gulf Bank.
· Although we can’t compare periods exactly, if one applies the same %, then the 3 month can fall back to -150 from -50 today.
· Ultimately, I still believe the curve will shift back in positive territory but this is relying in part on Kuwait issuing debt , and mostly local currency debt. They have set the rules and the green lights are flashing but they need to print.
· This closing of the capital increase is too big to be brushed aside.
· Brace for some action in the coming days !
Thank you
DC