Arab Times

Saudi banks merger boosts Alawwal

Geopolitic­al worries weigh on Gulf

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DUBAI, May 16, (RTRS): Saudi Arabia’s Alawwal Bank soared on Wednesday after the announceme­nt of its planned merger with Saudi British Bank, while most Gulf stock markets closed in negative territory on the back of rising geopolitic­al concerns.

The general weakness was in line with Asian markets, which slipped on Wednesday after North Korea called off talks with Seoul, throwing a US-North Korean summit into doubt. Oil prices were also not supportive, down because of a rise in US crude inventory and despite ongoing output cuts by producer group OPEC and the looming US sanctions against Iran.

In Saudi Arabia the index lost 1 percent, with most companies in the oil and gas and petrochemi­cal sectors shedding some value. Blue-chip Saudi Basic Industries Corporatio­n (SABIC) shed 1 percent.

But banks were in the spotlight, as Saudi British Bank (SABB) and Alawwal Bank agreed on a merger that, once completed, will create the country’s third-largest bank, with assets of around $77 billion.

“Over the last 12 months we have seen a wave of consolidat­ion announceme­nts across the GCC banking sector, as the industry struggles to identify areas of growth following reduced economic activity due to lower oil prices,” said Salman Bajwa, senior executive officer at Emirates NBD Asset Management.

If approved, the deal would see SABB acquire smaller peer Alawwal for 18.6 billion riyals ($4.96 billion) in what would be the first major banking merger in the kingdom in two decades.

The announceme­nt on Wednesday implied a valuation premium of around 28 percent on the shares of Alawwal Bank. Shares in Alawwal jumped 10 percent to 13.92 riyals in its heaviest trade since April 2017, while SABB shares sank 4.5 percent as some investors bet the bank was overpaying.

“In most M&A exercises, the smaller parties tend to benefit from being paid premiums by the bigger partners or acquirers. That is certainly true in this case,” Bajwa said.

Stocks in other Saudi banks were mixed. National Commercial Bank (NCB) initially fell as it went exdividend but then rebounded to gain 0.6 percent. The bank announced the resignatio­n of its chief executive, Mohammed al-Ghamdi, who will be replaced on an acting basis by Faisal Omar al-Sakkaf.

Al-Sakkaf is expected to become chief executive permanentl­y once formal procedures are completed, sources told Reuters.

Separately, NCB said on Wednesday that its shareholde­rs had approved a hike in the bank’s capital by 10 billion riyals via the issue of bonus shares.

In Dubai the index slipped 0.2 percent as Dubai Islamic Bank dropped 1 percent to 4.83 dirhams ($1.32). Trading of the bank’s rights issue began on Wednesday, allowing the purchase of the stock at 3.11 dirhams; the rights plunged 11.0 percent to 1.62 dirhams.

In Abu Dhabi, where the index edged down 0.1 percent, Dana Gas rose 1 percent after saying it received a dividend payment of $22.8 million from Pearl Petroleum Co, which produces natural gas in Iraqi Kurdistan.

ADNOC Distributi­on gained 1.2 percent after reporting a rise in first quarter net profit to 542.2 million dirhams, a 12.1 percent increase year on year, in line with some analysts’ expectatio­ns.

Saudi Arabia

The index shed 1 percent to 7,958 points.

Dubai

The index lost 0.2 percent to 2,932 points.

Abu Dhabi

The index slipped 0.1 percent to 4,467 points.

Qatar

The index gained 0.3 percent to 8,950 points.

Kuwait

The index edged down 0.1 percent to 4,776 points.

Bahrain

The index slipped 0.1 percent to 1,273 points.

Oman

The index shed 0.7 percent to 4,654 points.

Egypt

The index was flat at 16,993 points.

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