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
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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.


Flight rights group takes Ryanair to court over strike compensation

Updated 15 August 2018
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Flight rights group takes Ryanair to court over strike compensation

  • Ryanair had to cancel around 1 in 6 flights last week due to a walk-out by pilots in five European countries
  • The disruption affected 55,000 travelers

BERLIN: German passenger rights company Flightright is taking Ryanair to court over whether it should pay financial compensation to passengers affected by strikes at Europe’s largest low-cost carrier.
Ryanair had to cancel around 1 in 6 flights on Friday due to a walk-out by pilots in five European countries, disrupting an estimated 55,000 travelers.
The worst affected country was Germany, where 250 flights affected around 42,000 passengers.
EU rules state that passengers can claim monetary compensation of up to €400 for flights within the region for canceled or delayed flights, unless the reason is extraordinary circumstances, such as bad weather.
Strikes have generally fallen under extraordinary circumstances although a ruling by the European Court of Justice in April said that a wildcat strike by staff at German airline TUIfly following a restructuring could not be classed as extraordinary circumstances. Flightright said it believes Ryanair is therefore obliged to pay monetary compensation to customers and so has filed a complaint with a court in Frankfurt in a bid to clarify the rules around strikes.
A spokeswoman for the court said she was aware of the Flightright statement, but that she had not yet seen the complaint.
Ryanair said it fully complies with the European legislation on the matter, known as EU261.
“Under EU261 legislation, no compensation is payable when the union is acting unreasonably and totally beyond the airline’s control. If this was within our control, there would be no cancelations,” a spokesman said.
Passenger rights groups such as Flightright help passengers to claim compensation from airlines under EU261 rules but in exchange for a share of the compensation received.
Many European airlines, including Ryanair, therefore urge passengers to file claims with them directly instead.