Daily Management Review

Plan to Form $175 Billion Bank Approved by Abu Dhabi’s NBAD, FGB


07/05/2016




Plan to Form $175 Billion Bank Approved by Abu Dhabi’s NBAD, FGB
In a deal that will create a regional powerhouse with $175 billion of assets, the National Bank of Abu Dhabi PJSC is merging with rival First Gulf Bank PJSC.
 
While FGB’s shares will be de-listed and the lender will operate under the National Bank of Abu Dhabi name, FGB shareholders will hold 52 percent of the combined entity -- billed as a merger of equals. Implying a 3.9 percent discount to the June 30 close, NBAD will exchange 1.254 of its own shares for each FGB share. FGB managing director Abdulhamid Saeed will ultimately take over the new entity after the merger takes place and until then the chief executive officers of both banks will continue.
 
The aim of combining the largest banks of Abu Dhabi is to bolster its ability to lend and secure funding as it grapples with a more than 50 percent drop in oil prices over the past two years and to better compete in size with regional rivals such as Qatar National Bank SAQ. The United Arab Emirates’ financial services industry where about 50 lenders compete in a market of about 9 million people, is another  target of the merger.
 
“Creating a megabank in Abu Dhabi will help the sovereign cut costs of funding for megaprojects and also reduce lenders in the overbanked country. The merger terms will bring NBAD’s valuation close to that of FGB.,” said Reda Gomaa, a portfolio manager at Mashreq Asset Management in Dubai.
 
Even though integration costs will about 600 million dirhams, the plan will deliver savings of about 500 million dirhams ($136 million) annually. About 37 percent of the merged bank would be owned by the Abu Dhabi government and related entities.
 
Holding about 26 percent of the U.A.E.’s outstanding loans, the combined bank will be among the largest in the Middle East and North Africa. It will also combine FGB’s strength in consumer banking with NBAD’s position in wholesale banking and advisory and have a presence overseas in cities including Singapore, Hong Kong, Geneva and London.
 
“We see very strong merits of the merger,” said Jaap Meijer, a Dubai-based managing director for research at Arqaam Capital Ltd. With “NBAD buying FGB, the entity secures a better credit rating right away,” he said.
 
To help plug a budget deficit exacerbated by the slump in crude prices, Abu Dhabi -- holder of about six percent of global oil reserves -- is cutting spending and tapping cash reserves. Plans to merge its two biggest state-owned investment companies, International Petroleum Investment Co. and Mubadala Development Co. were announced made by it last week.
 
With a return on average equity of 14.1 percent, the combined bank will have a Tier 1 capital ratio of 15.7 percent. According to the statement issued by the authorities, the new bank would have a lending book composed of 52 percent of loans to businesses, 26 percent to retail and 22 percent to the government sector.
 
Chiradeep Ghosh, a banking analyst at Securities & Investment Co. in Bahrain, said that a "bigger balance sheet will help the merged entity to tap more business and grab greater share of syndicated loans".
 
(Source:www.bloomberg.com) 






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