National Bank of Kuwait’s (NBK) Board of Directors (BoD) approved last Thursday a 6.5% rights issue, at a price per share of KWD0.4. The planned rights issue involves raising proceeds of KWD137.6 million (total shareholders’ equity stood at KWD2,607 million in December 2015) and 343.96 million new shares. The price of the rights issue of KWD0.4 is at a 40% discount to last Thursday’s closing share price of KWD0.67. Kuwait banks tend to carry out rights issues at a marked discount to share prices.   New capital will add buffers to NBK’s CET1 capital; rights issue was expected: As of December 2015, NBK had a common equity tier-1 (CET1) ratio of 13.2%. This is above the regulatory minimum for NBK of 11.5% by end of 2016. We estimate that the new capital will add around 1%-pt to NBK’s CET1 ratio, and this is in line with its focus on maintaining sizeable buffers over regulatory minimums. NBK’s press release also mentions that the new capital  “will allow the bank to continue capturing growth opportunities, especially in Kuwait as the government’s capital spending plan remains intact and as NBK continues to be the market leader in the project finance segment”. The announcement of the rights issue is not a surprise, as NBK last month received all the necessary approval from regulatory authorities, as well as its general assembly to increase the bank’s authorised capital. The size of the rights issue of KWD137.6 million is smaller than our previous assumption of KWD150-200 million.   Small dilution to ROE post capital increase: We estimate that the rights issue will lead to a slight ROE dilution of 0.3% in 2016 to 10.87% (from 11.15%) and of 0.6% in 2017 to 11.09% (from 11.64%). NBK our top pick in the Kuwait bank sector, has the strongest loan growth outlook amongst the banks we cover in Kuwait, and its much larger balance sheet versus peers allows it to capture a larger share of the project finance market, where there are attractive growth opportunities in 2016-17 backed by government spending.  (Elena Sanchez-Cabezudo, CFA, Rajae Aadel, Company disclosure)   National Bank of Kuwait: KWD0.67 as of 31 March 2016, Rating: Buy, FV: KWD0.87 per share, MCap: USD11,255 million, NBK KK / NBKK.KW