HSBC, Credit Suisse to advise on Kuwait’s KFH, Bahrain’s AUB merger talks

The deal provides a non-binding framework to explore the creation of “a major regional banking institution. (REUTERS)
Updated 23 July 2018
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HSBC, Credit Suisse to advise on Kuwait’s KFH, Bahrain’s AUB merger talks

  • KFH declined as much as 1.3 percent for a market value of about $12.8 billion

LONDON: HSBC and Credit Suisse have been selected to advise on a possible merger between Ahli United Bank (AUB) and Kuwait Finance House (KFH), AUB said on Sunday.
A merger between Bahrain’s largest bank and Kuwait’s biggest Islamic lender would be the first cross-border tie-up between Gulf banks in recent years at a time when several other banks are consolidating.
HSBC and Credit Suisse were selected to complete studies to assist AUB and KFH in arriving at a fair share exchange ratio, the statement said, without specifying which investment bank was advising which lender.
If agreement on the share exchange ratio is reached, the next step would be the initiation of due diligence and other steps.
KFH said last week it had invited AUB to begin a due diligence process for a potential merger.
The deal provides a non-binding framework to explore the creation of “a major regional banking institution capable of competing more effectively in its existing and new potential markets,” AUB Chairman Hamad Al-Humaidhi said.
Separately, AUB also said its net profit for the second-quarter was $182.7 million, up 20.3 percent from a year earlier.
Shares in AUB rose 6.8 percent earlier this month to the highest levels since April 2017, and led to the Manama, Bahrain-based lender being valued at $5.66 billion.
KFH declined as much as 1.3 percent for a market value of about $12.8 billion.
Bahrain, which is a key Saudi Arabian ally and home to the US’ Fifth Fleet, hired investment bank Lazard to advise on how to boost its public finances, according to sources with knowledge of the matter.


Dubai real estate market recovery to be seen as of 2022: S&P

Updated 44 min ago
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Dubai real estate market recovery to be seen as of 2022: S&P

  • The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate
  • S&P was generally comfortable with the credit ratings of the emirate’s banking system

DUBAI: S&P Global, the ratings agency, painted a grim picture for the real estate sector in Dubai, with a meaningful recovery in property prices expected only after 2022.
At a presentation to journalists in the Dubai International Financial Center, S&P analyst Sapna Jagtiani said that under the firm’s “base case scenario,” the Dubai real estate market would fall by between 5 and 10 percent this year, roughly the same as the fall in 2018, which would bring property prices to the levels seen at the bottom of the last cycle in 2010, in the aftermath of the global financial crisis.
“On the real estate side we continue to have a very grim view of the market. While we expect prices to broadly stabilize in 2020, we don’t see a meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery,” she said.
S&P’s verdict adds to several recent pessimistic assessments of the Dubai real estate market. Jagtiani said that conditions in the other big UAE property market, in Abu Dhabi, were not as negative, because “Abu Dhabi never did ramp up as much in 2014 and 2015 as Dubai.” S&P does not rate developers in the capital.
She added that a “stress scenario” could arise if government and royal family related developers — such as Emaar Properties, Meraas, Dubai Properties and Nakheel — which have attractive land banks and economies of scale, continue to launch new developments.
“In such a scenario, we think residential real estate prices could decline by 10-15 percent in 2019 and a further 5-10 percent in 2020. In this case, we expect no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply,” she said.
S&P recently downgraded Damac, one of the biggest Dubai-based developers, to BB- rating, on weak market prospects.
However, Jagtiani said that, despite the “significant oversupply” from existing projects, several factors should held stabilize the market: Few, if any, major product launches; improved affordability and “bargain hunting” by bulk buyers; and a resurgence of Asian, especially Chinese, investor interest in the market.
Jagtiani also said that government measures such as new ownership and visa regulations and reduction in government fees could help prevent prices falling more sharply, as well as “increased economic activity related to Dubai Expo 2020, which is expected to attract about 25 million visitors to the emirate.”
The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate. “In our view, credit conditions deteriorated in Dubai in 2018, reducing the government’s ability to provide extraordinary financial support to its government related entities (GREs) if needed,” S&P said in a report. “The negative outlook on Dubai Electricity and Water
Authority (DEWA) partly reflects our concern that a real estate downturn beyond our base case could out increased pressure on government finances,” the report said.
It pointed out that about 70 percent of government revenues come from non-tax sources, including land transfer and mortgage registration fees, as well as charges for housing and municipality liabilities, as well as dividends from real estate developers it controls, like Emaar and Nakheel.
S&P was generally comfortable with the credit ratings of the emirate’s banking system, which has an estimated 20 percent exposure to real estate. “Banks in the UAE tend to generally display a good level of profitability and capitalization, giving them a good margin to absorb a moderate increase in risks,” the report said.