Kuwait Finance offers to buy Bahrain bank for US$8.8b

DUBAI: Kuwait Finance House (KFH) has offered to buy Bahrain’s Ahli United Bank (AUB) in an all-share deal that is valued at about US$8.8 billion (RM36.7 billion).

The Kuwaiti lender plans to issue one share for every 2.325581 shares of AUB, according to a statement. In January, the banks’ advisers had recommended the same swap ratio.

The combined entity will potentially become the Gulf’s sixthbiggest lender with US$100 billion in assets and the deal value was based on the lenders’ closing price on Thursday.

KFH shares have gained 27 per cent this year to 707 fils (RM9.70), while AUB shares are up 51 per cent to 94.1 US cents.

The swap ratio is fair and the merger “will create substantial cost synergies in Bahrain and Kuwait”, Jaap Meijer, said the Dubai-based head of research at Arqaam Capital Ltd, by email.

He expects a 24.8 per cent rise in KFH’s earnings and the combination to boost its return on equity by by 2.7 percentage points, driven by the cost synergies, AUB’s better asset quality, higher growth prospects and strong capital.

Lower oil prices over the past five years are forcing Gulf lenders to consolidate for scale and to better compete in a crowded market.

Subdued credit growth, competition for deposits, higher cost of funds and deteriorating asset quality are driving consolidation in the regional banking sector.

In Saudi Arabia, National Commercial Bank is in the process of merging with Riyad Bank to create the Gulf’s third-largest lender with US$193 billion in assets.

Abu Dhabi completed the merger of three of its banks earlier this year to create the region’s fifth-biggest lender.