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Dubai Islamic Bank Paid $102 Million to Buy Controlling Stake in Tamweel

Dubai Islamic Bank PJSC (DIB) paid 374.7 million dirhams ($102 million) to buy a controlling stake in Tamweel PJSC (TAMWEEL) as the United Arab Emirates’ biggest Islamic lender sought to boost mortgage financing in Dubai.

Dubai Islamic paid 318.6 million dirhams in cash and 56.1 million dirhams in treasury shares for the stake, according to the bank’s annual report distributed on March 31. The lender in September raised its share in Tamweel to 58.3 percent from 21 percent, without disclosing the value of the transaction.

The deal implies a payment of 1 dirham for each Tamweel share, according to Bloomberg calculations. Tamweel’s shares last traded at 0.99 dirham on Nov. 20, 2008, when they were suspended pending a reorganization. They had a book value of 2.23 dirhams at the end of December, Tamweel’s results show.

"I was anticipating a payment of 0.7 dirham a share, so the acquisition is certainly more expensive than I had expected," Raj Madha, a Dubai-based analyst at Rasmala Investment Bank Ltd., said in a phone interview today. "What is more interesting about the transaction though is the funding guarantees that Tamweel received which will help its longevity."

Tamweel and Amlak Finance PJSC, another Dubai-based Islamic mortgage company, halted lending after the global credit crisis blocked their access to funds. The U.A.E. federal government set up a committee in 2008 to study the revival of the two companies, which had relied on market borrowings to fund their mortgages. Tamweel began lending again from Nov. 1.

Fair Value

Dubai Islamic Bank also revalued each Tamweel share to 2.7 dirhams after a valuation of the company, according to the report. As a result, the bank booked a fair value gain of 637 million dirhams from the acquisition in 2010.

"The gain has no real impact on my valuation; it doesn’t add to Dubai Islamic Bank’s cash flows, doesn’t affect its ability to pay dividend and doesn’t add to regulatory capital," Madha said.

Shares of Dubai Islamic Bank, in which the Dubai government holds a 30 percent stake, gained 1.4 percent to 2.25 dirhams at 1:33 p.m. in Dubai today. The stock has gained 3.2 percent this year compared with a 4.5 percent decline in the benchmark Dubai Financial Market General Index.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editor responsible for this story: Edward Evans at Eevans3@bloomberg.net

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