Abu Dhabi, UAESunday 5 April 2020

Oman Arab Bank's gets nod from Alizz board to proceed with merger

Alizz Bank's board approved share swap ratio that will give OAB about 81 per cent control of the merged entity

The board of MSM-listed Alizz Bank has approved the share swap ratio for its merger with Oman Arab Bank. Silvia Razgova / The National
The board of MSM-listed Alizz Bank has approved the share swap ratio for its merger with Oman Arab Bank. Silvia Razgova / The National

The board of Al Izz Islamic Bank, a Muscat listed Sharia-compliant lender, approved a share swap ratio for its merger with the Oman Arab Bank, paving the way for the latest banking merger deal in the Gulf.

The board recommended the swap ratio that gives OAB about 81 per cent control of the merged entity to its shareholders, the lender said in a bourse filing to the Muscat Securities Market. Ominvest, an investment holding firm which controls unlisted OAB, said the actual swap ratio will be based on the net asset value as per the audited financial statements for the year ended December 31, 2019.

“Appropriate adjustments will be made to movements in both banks' financials between December 31, 2019 and the actual transaction date,” it said in a statement to the bourse on Sunday. The transaction remains subject to shareholder and regulatory approvals.

"We believe that OAB has priced [Alizz] ‎close to its fair value / net book value," Ayisha Zia, a research analyst at Muscat-based U Capital said in a research note.

If the two banks decide to go ahead with the merger, the combined entity will be the third-largest Islamic banking services provider in Oman, with a total asset base ‎of 3.18 billion Omani rials (Dh30.5bn) and an Islamic asset base of 866 million rials.

This compares to the largest Islamic banking window of Bank Muscat, which had total assets of ‎1.44bn rials at the end of September 2019 and Bank Nizwa's 967.4m rials, according to the U Capital note.

The two Muscat-based lenders said in May last year they were exploring the possibility of a strategic collaboration that could lead to an eventual merger of the two entities. A preliminary agreement pledging to continue merger talks was signed last year, when legal and financial advisers were appointed to conduct due diligence.

The proposed deal would be credit-positive for OAB and provide it with a larger Islamic franchise and asset base, “allowing it to improve its interest income and deposit-gathering ability”, Moody Investors Service said in an October 2018 report. It would also help the bank capitalise on the fast-growing Islamic banking segment in Oman, it added.

The deal, if successful, will be a continuation of the consolidation trend underway in the banking sector across the GCC. Bank mergers in the region have picked up pace in recent years as lenders combine their balance sheets to gain scale and drive efficiencies to face tough market conditions against a weaker global economic backdrop.

Dubai Islamic Bank’s takeover of its smaller rival, Noor Bank, is the latest deal nearing completion. DIB, the UAE's biggest Sharia-compliant lender, received shareholder approval earlier this month for the acquisition through a capital increase and share swap to create a banking entity with assets of more than Dh275 billion.

This follows the merger of National Bank of Abu Dhabi and First Gulf Bank to create First Abu Dhabi Bank and a three-way tie-up between Abu Dhabi Commercial Bank, Union National Bank and Islamic lender Al Hilal Bank last year.

Kuwait Finance House is also due to host a shareholders' meeting on Monday to vote on the terms of its acquisition of its smaller Bahraini counterpart to create a combined Islamic banking entity with more than $96.7bn in assets.

Updated: January 19, 2020 05:58 PM

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