BNP Paribas SA (BNP), France’s biggest bank, agreed to sell its Egyptian unit to Dubai-based Emirates NBD PJSC (EMIRATES) in a $500 million deal, the second French lender to dispose of assets in the North African nation this month.
Emirates NBD will buy Paris-based BNP Paribas’ 95.2 percent stake in BNP Paribas Egypt SAE and offer to acquire the remaining 4.8 percent stake from minority shareholders at the same price, the Dubai bank said in a statement to the bourse today. The deal values the Egyptian unit at $500 million, or 1.6 times its book value at the end of September, it said.
The United Arab Emirates’ largest bank by assets follows Qatar National Bank SAQ (QNBK) into Egypt after the Doha-based lender this month agreed to pay $1.97 billion for Societe Generale SA (GLE)’s 77.2 percent stake in Cairo-based National Societe Generale Bank SAE (NSGB), twice its book value at end-September. Emirates NBD is expanding abroad to beat slower loan growth at home.
“Emirates NBD is getting into a higher growth market where loan growth and return on equity are stronger than in the U.A.E.,” Shabbir Malik, a Dubai-based analyst at Egyptian investment bank EFG-Hermes Holding SAE (HRHO), said today by phone.
The takeover of the Cairo-based bank, which owns a network of 69 branches, should close by the end of March, pending regulatory approvals, Emirates NBD said. The Dubai lender’s shares rose 0.7 percent to close at 2.85 dirhams in Dubai today, trimming this year’s drop to 3.1 percent, compared with an 18 percent advance in Dubai’s index.
Emirates NBD, 56 percent owned by the Dubai government, is aiming to boost revenue from international operations to 20 percent of the total over the next three to five years, from 5 percent now, Giel-Jan Van Der Tol, the bank’s general manager for wholesale banking, said in an interview last month.
“Egypt is very much a growth market and this bank has been growing at an average of 15 percent in the last few years,” Kevin Flannery, Emirates NBD’s general manager international, said by phone today. “That growth statistic will continue, if not rise, as things settle in Egypt.”
BNP Paribas Egypt’s 2011 revenue reached 731 million Egyptian pounds ($119 million) while profit was 222 million pounds, according to today’s statement. Egyptian bank credit surged 20 percent in the year to October to 1.15 trillion pounds, according to central bank data. Annual U.A.E. loan growth was 2.6 percent in September to 1.1 trillion dirhams ($300 billion), central bank data show.
Qatar National Bank has also outlined growth ambitions to more than double the ratio of profit it derives from global operations by 2017 to offset limited retail growth potential in its domestic market of 1.8 million. The U.A.E. is home to 8.3 million people, compared with Egypt’s 83 million.
U.A.E. credit growth has slowed since the 2008 global financial crisis triggered a real estate crash and a climb in bad loans. Emirates NBD was downgraded by one level at Moody’s Investors Service on Dec. 7 to Baa1, its third-lowest investment grade, because it hasn’t done enough to address non-performing loans, which amount to 17.8 percent of the total.
Emirates NBD is keen to expand in the Middle East, North Africa, Turkey and Islamic nations in South East Asia and south Asia, Flannery said. It already has retail and investment banking licenses in Saudi Arabia, as well as operations in London and Singapore, and offices in Qatar, China and India. “If the right assets were to come up in Turkey, yes, we would be looking at Turkey as well,” Flannery said.
The opportunity to enter Egypt comes as Standard & Poor’s lowered credit ratings of three French lenders, BNP Paribas among them, in October on concern it may be hurt by Europe’s protracted economic weakness and a potential housing slump in France as the euro-zone debt crisis enters its fourth year.
The funding situation at French banks, the biggest foreign holders of debt in the euro-area’s problem economies including Greece, is stabilizing after 1 trillion euros ($1.32 trillion) in long-term loans by the European Central Bank. BNP Paribas has boosted capital with retained earnings and asset disposals.
Emirates NBD will pay for BNP Egypt with its own cash and doesn’t need to inject new capital into the unit, whose capital adequacy ratio is about 17 percent, Neeraj Makin, vice president for strategic acquisitions, said by phone today. The bank had cash and near cash items of $8.1 billion at the end of September, according to data compiled by Bloomberg.
The deal, which boosts assets by as much as 3 percent, will add about 7 percent to profit and 5 percent to revenue immediately, Flannery said. Assets of the bank, formed in 2007 when the government ordered the merger of Emirates Bank International PJSC and National Bank of Dubai PJSC, were 305 billion dirhams ($83 billion) in the third quarter.
In Egypt, BNP and Emirates NBD plans to cooperate in areas including trade finance, cash management, and corporate and investment banking, the Dubai bank said.
BNP Paribas was advised by BNP Paribas Corporate Finance for this transaction, while Allen & Overy LLP acted as its legal counsel. Perella Weinberg Partners and HC Securities and Investment advised Emirates NBD. Emirates NBD also retained Deloitte LLP to carry out accounting and tax due diligence while McKinsey & Co helped with commercial due diligence.
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