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.


Japan exports fall for first time since 2016 as trade war fears mount

Updated 4 min 37 sec ago
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Japan exports fall for first time since 2016 as trade war fears mount

  • Japanese policymakers remain wary about the overall economic impact of the international trade frictions
  • The US-Sino tariff row has yet to materially hurt trade activity
TOKYO: Japan’s exports fell in September for the first time since 2016 as shipments to the US and China declined, likely impeding third quarter economic growth and adding to concerns about the broadening impact of an escalating Sino-US trade war.
The data comes days after a Reuters poll showed a third of Japanese companies — not just exporters — have been affected by the trade conflict between the world’s two biggest economies, and more than half worried about its fallout on their business.
Japanese policymakers also remain wary about the overall economic impact of the international trade frictions. A string of natural disasters that struck Japan has added to the strain on factories, disrupting output and physical distribution.
The US-Sino tariff row has yet to materially hurt trade activity, but a slowdown in external demand has bolstered views that Japan’s economy, the world’s third largest, likely slowed sharply in the July-September quarter.
“The economy probably grew only slightly in the third quarter, led by firm consumption and brisk capex. External demand likely made no contribution,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Assuming the US-China trade frictions have widespread effects on global trade, Japan’s exports will struggle to grow.”
Minami said declines in shipments to the US and China — the two key export destinations for Japan — are a source of concern as each of them accounts for about 20 percent of Japanese exports, respectively.
Ministry of Finance (MOF) data out on Thursday showed Japanese exports fell 1.2 percent in September from a year earlier, against a 1.9 percent increase expected by economists in a Reuters poll, and followed a 6.6 percent gain in August.
It was the first decline since November 2016.
In volume terms, exports fell 4.8 percent in the year to September, the first drop in seven months.
Japan’s exports to the US declined 0.2 percent in the year to September, dragged down by falling shipments of construction and mining machinery, auto parts and medicines.
US-bound auto exports amounted to some 143,000 cars, down 7.0 percent year-on-year in a snapback from the previous year’s brisk shipments, a sign that car sales have levelled off.
Imports from the US rose 3.1 percent in September, led by crude oil, liquefied petroleum gas, helping reduce Japan’s trade surplus with the US by 4.0 percent year-on-year to ¥590 billion ($5.24 billion).
The US Trade Representative’s office told Congress on Tuesday it would open trade talks with Japan, describing the country as an important yet underperforming market for US exports.
Tokyo and Washington last month agreed to start trade talks in an arrangement that, for now, avoids the worst-case scenario of an imminent 25 percent tariff on cars.
Trump has made clear he is unhappy with Japan’s $69 billion trade surplus with the US — nearly two-thirds of it from auto exports — and wants a two-way agreement to address it.
Tokyo pushed back on a straight bilateral Free Trade Agreement that Washington had sought, fearing it could put Japan under pressure to open politically sensitive sectors such as agriculture.
Thursday’s trade data showed exports to China, Japan’s biggest trading partner, fell 1.7 percent in the year to September, the first decline in seven months, dragged down by semiconductor production equipment.
Shipments to Asia, which account for more than half of Japan’s overall exports, rose 0.9 percent.
Overall imports rose 7.0 percent in the year to September, versus the median estimate for a 13.7 percent annual increase.
The trade balance was surplus of ¥139.6 billion, compared with the median estimate for a shortfall of ¥50 billion.
“External demand has likely put a drag on Japan’s economy,” said Koya Miyamae, senior economist at SMBC Nikko Securities.
“Going forward, exports may recover from supply constraints, but effects from slowdown in emerging markets, and the US-China trade war remain a source of concern.”