Wave of Gulf bank mergers almost over: S&P Global Ratings

Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank combined in a three-way merger on May 1, 2019. (AFP)
Updated 28 May 2019

Wave of Gulf bank mergers almost over: S&P Global Ratings

  • Smaller scale consolidations could still happen in overbanked countries to ‘help improve banks’ performance and financial stability

DUBAI: The Gulf banking sector may experience fewer mergers and acquisitions, with the remaining pool of lenders seeing limited bases – except for economic reasons – for them to consider consolidation deals.

“Most mergers to date have involved banks with common major shareholders,” S&P Global Ratings said in a report. “As such, the pool of banks with similar ownership is smaller, which will mean fewer M&A from now on unless economic reasons force the issue.”

The rating agency however noted that given the overcapacity of some Gulf banking systems, particularly in the UAE and Oman, smaller scale consolidations could still happen to ‘help improve banks’ performance and financial stability.

In the UAE, there are 49 commercial banks serving a population of about 9 million while 20 banks in Oman serve a population of about 4.7 million.

“The presence of a significant number of banks in these two countries means that smaller players typically have to differentiate by focusing on specific segments like Islamic banking, riskier clients rejected by larger lenders, or by competing on price,” S&P Global Ratings said, which could be enhanced by seeking synergies with other lending institutions.

“Any future M&A would require more aggressive moves by management than those seen in the past. The added hurdles of convincing boards and shareholders, who face the possibility of seeing their assets diluted or losing control, means the next wave of deals may take longer to build than the current one,” it added.


Saudi Aramco sets IPO share price between 30-32 riyals

Updated 59 min 54 sec ago

Saudi Aramco sets IPO share price between 30-32 riyals

  • Saudi Aramco intends to buy $1 billion worth of shares for employee

DUBAI: Saudi Aramco’s multibillion-dollar initial public offering (IPO), probably the biggest in history, shifted to full gear as its share price was announced and subscription to the world’s biggest oil company commenced on Sunday.

Saudi Aramco set an indicative share price between 30 and 32 riyals for the 1.5 percent of its oustanding shares – or about 3 billion shares of its 20 billion regular shares – that it would offer for the domestic part of its public offering. The blockbuster IPO could be worth least $24 billion, and values the state-owned oil giant at up to $1.71 trillion.

The offering – or book-building – period for institutional subscribers, which started today, closes on December 4 while the retail offering for individual investors will begin on November 21 and will end on November 28. Individual investors will subscribe based on a price of 32 riyals, the top end of the price range, the company noted in a document.

The final pricing for the Aramco shares would be announced on December 5, and Saudi Tadawul  – the Kingdom’s stock exchange – would make an announcement when initial trading day would be, the company added.

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For more of our coverage of the Aramco IPO, click here.

To view key Aramco IPO documents, click here.

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Samba Capital & Investment Management Company has been designated as issue manager while National Commercial Bank, Saudi British Bank, Samba Financial Group, Saudi Investment Bank, Alawwal Bank, Arab National Bank, Albilad Bank, Aljazira Bank, Riyad Bank, Al Rajhi Bank, Alinma Bank, Banque Saudi Fransi and Gulf International Bank were named as receiving banks.

If there are applications for more than the 0.5 percent on offer — amounting to 1 billion shares — allocations to private investors will be scaled back proportionate to demand; if there are fewer applications than the 0.5 percent when all maximum applications are satisfied, private investors can have the over-payment refunded either in cash via the receiving banks or in the form of extra shares in Aramco.

There is an incentive mechanism in the IPO whereby Saudi investors will receive a bonus one-for-ten allocation of shares, up to a maximum of 100 shares, if they do not sell shares in the market for a period of six months after dealings begin in December, at a date still to be determined.

Saudi Aramco also intends to buy $1 billion worth of shares for employees under a plan to incentivize executives and staff members alongside the IPO next month.

The plan — which was disclosed in the IPO prospectus — will involve Aramco buying the shares from the government and making them available for employees under special terms.