Late last week, the government of Abu Dhabi, the capital of the United Arab Emirates, announced that it would inject AED 16 billion (approximately $4.4 billion) into its five largest banks, in order to shore up their capital and protect the emirate’s banking system from the global financial crisis. According to various news reports, the undersecretary at the Abu Dhabi Department of Finance, Hamad Al Hurr Al Sawaidi, stated that “the government views this capital injection into the banking system as an important step to allow Abu Dhabi financial institutions to remain strong and well-capitalized compared to international peers, and fulfill their role in achieving the government’s vision for the Abu Dhabi economy.”

The five banks that will receive capital injections from the Abu Dhabi government in exchange for issuances of Tier 1 capital notes, with a principal amount of between AED 2 billion and AED 4 billion, are Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, First Gulf Bank, National Bank of Abu Dhabi and Union National Bank. All notes issued by the banks will be non-voting, non-cumulative perpetual securities and callable subject to certain conditions. Additionally, all issued notes will bear interest at a rate of 6% per annum, payable semi-annually in arrears from the issue date for a period of five years, and thereafter at a floating rate, reset and payable semi-annually in arrears, reflecting the initial margin above the then prevailing six-month Emirates Interbank Offered Rate (EIBOR).