Alawwal and SABB merger to create Saudi Arabia’s third largest bank

SABB, which is 40 percent owned by HSBC Holdings, and Alawwal said in April last year they had agreed to start talks on the merger. (Courtesy SABB)
Updated 16 May 2018

Alawwal and SABB merger to create Saudi Arabia’s third largest bank

  • Combined bank will have assets or around $77 billion
  • Merger motivated by Alawwal shareholder RBS to exit Saudi market

LONDON: Saudi British Bank (SABB) and Alawwal Bank have agreed to merge, in a move that would create the Kingdom’s third-biggest lender with assets of around $77 billion, the institutions announced on Wednesday.

The agreement will see SABB — 40 percent owned by the UK’s HSBC — acquire Alawwal, which is 40 percent owned by Royal Bank of Scotland — for 18.6 billion riyals ($4.96 billion).
The banks made the announcement on the Saudi stock exchange Tadawul on Wednesday.
The merger, initially flagged as a possibility by the banks in April, is the first major deal of its kind in the Kingdom’s for around 20 years. It will create a lender only exceeded in size in the country by National Commercial Bank and Al-Rajhi.
The banks’ boards have reached a non-binding agreement on the share exchange ratio, subject to several conditions, the institutions said in separate filings.
“A binding agreement is yet to be entered into between Alawwal Bank and SABB,” the two banks said. “Any binding agreement to proceed with the merger will be subject to a number of conditions, including SAMA [central bank], other regulatory authorities, and the shareholders’ approval.”
Based on the preliminary agreement, Alawwal shareholders would receive 0.485 SABB shares for each Alawwal share, it was announced.
Based on the exchange ratio and the closing price of 33.5 riyals ($8.93) per SABB share on Monday, the last trading day before the announcement, the merger would value each Alawwal share at 16.3 riyals and Alawwal’s existing issued ordinary share capital at approximately 18.6 billion riyals, the statement said. This represents a premium of 28.5 percent to the Alawwal share price, the banks said.
The combined entity is valued at a price-to-book ratio of 1.4, according to calculations by Saudi Fransi Capital, which added that the deal significantly strengthens HSBC’s presence in the Kingdom.
“It is already a premium player in investment banking, and this will only reinforce its credibility for government and premium corporates,” the bank said in a research note, indicating it was likely to attract “a lot of lucrative mandates” linked to the country’s economic transformation in the coming five to 10 years.
Alawwal shares surged 10 percent on the announcement, while  SABB retreated 4.5 percent, as part of a wider sell-off on the Tadawul.
Progress on the merger had taken longer than expected, partly because the regulatory environment for bank acquisitions in Saudi Arabia is relatively untested. Shareholders were also assessing any potential impact from the Kingdom’s anti-corruption drive, two sources told Reuters in January.
The steps still to be agreed include completion of confirmatory due diligence, finalization of the merger deal and agreement on a number of other commercial issues, the banks said.
The merger follows similar tie-ups in recent years by banks in Abu Dhabi, Qatar and Bahrain, as part of national economic consolidation programs coming in the wake of lower oil prices.
FGB and NBAD of Abu Dhabi completed a merger last year to form First Abu Dhabi Bank (FAB), the UAE’s largest by assets.
The SABB-Alawwal deal, by contrast, is primarily motivated by the desire by RBS to exit the Saudi market, according to Aqib Mehboob, a senior analyst with Saudi Fransi Capital.
“This merger appears to be driven more by facilitating an exit for RBS from KSA due to capital requirements for RBS, as generally European banks are pulling back from emerging markets due to new regulatory requirements,” he told Arab News.
“We believe that the regulator (SAMA) feels that the market can support more financial services providers, particularly as Vision 2030 is implemented. Therefore, we do not believe that SAMA is pushing for further consolidation among domestic banks.”
In March rating agency Moody’s Investor Service said that it expected Saudi Arabia’s banks to outperform regional peers in 2018, thanks to improvements in the Kingdom’s economy and higher interest rates.
Moody’s predicted that commission and fee income at the country’s bank will grow 5 percent this year, with a rise in government prompting a recovery in trade and foreign exchange transactions.

Merkel seeks united front with China amid Trump trade fears

Updated 22 May 2018

Merkel seeks united front with China amid Trump trade fears

  • Merkel seeks common ground to ward off trade war
  • Plans complicated by US policy moves

Chancellor Angela Merkel visits China on Thursday, seeking to close ranks with the world’s biggest exporting nation as US President Donald Trump shakes up explosive issues from trade to Iran’s nuclear deal.

Finding a common strategy to ward off a trade war and keep markets open will be Merkel’s priority when she meets with President Xi Jinping, as Washington brandishes the threat of imposing punitive tariffs on aluminum and steel imports.

“Both countries are in agreement that open markets and rules-based world trade are necessary. That’s the main focus of this trip,” Merkel’s spokeswoman Martina Fietz said in Berlin on Friday.

But closing ranks with Beijing against Washington risks being complicated by Saturday’s deal between China and the US to hold off tit-for-tat trade measures.

China’s economic health can only benefit Germany as the Asian giant is a big buyer of Made in Germany. But a deal between the US and China effectively leaves Berlin as the main target of Trump’s campaign against foreign imports that he claims harm US national security.

The US leader had already singled Germany out for criticism, saying it had “taken advantage” of the US by spending less than Washington on NATO.

Underlining what is at stake, French Economy Minister Bruno Le Maire warned the US-China deal may come “at the expense of Europe if Europe is not capable of showing a firm hand.”

Nevertheless, Merkel can look to her carefully nurtured relationship with China over her 12 years as chancellor.

No Western leader has visited Beijing as often as Merkel, who will be undertaking her eleventh trip to the country.

In China, she is viewed not only as the main point of contact for Europe, but, crucially, also as a reliable interlocutor — an antithesis of the mercurial Trump.

Devoting her weekly podcast to her visit, Merkel stressed that Beijing and Berlin “are both committed to the rules of the WTO” (World Trade Organization) and want to “strengthen multilateralism.”

But she also underlined that she will press home Germany’s longstanding quest for reciprocity in market access as well as the respect of intellectual property.

Ahead of her visit, Beijing fired off a rare salvo of criticism.

China’s envoy to Germany, Shi Mingde, pointed to a “protectionist trend in Germany,” as he complained about toughened rules protecting German companies from foreign takeovers.

Only 0.3 percent of foreign investors in Germany stem from China while German firms have put in €80 billion in the Asian giant over the last three decades, he told Stuttgarter Nachrichten.

“Economic exchange cannot work as a one-way street,” he warned.

Meanwhile, looming over the battle on the trade front is another equally thorny issue — the historic Iran nuclear deal, which risks falling apart after Trump pulled the US out.

Tehran has demanded that Europe keeps the deal going by continuing economic cooperation, but the US has warned European firms of sanctions if they fail to pull out of Iran.

Merkel “hopes that China can help save the atomic deal that the US has unilaterally ditched,” said Die Welt daily.

“Because only the giant emerging economy can buy enough raw materials from Iran to give the Mullah regime an incentive to at least officially continue to not build a nuclear weapon.”