Abu Dhabi’s NBAD, FGB Approve Plan to Form $175 Billion Bank

  • FGB managing director Abdulhamid Saeed to be CEO after deal
  • Combined entity to operate under NBAD name; FGB to be delisted

Abu Dhabi's NBAD and FGB to Merge

National Bank of Abu Dhabi PJSC is merging with rival First Gulf Bank PJSC in a deal that will create a regional powerhouse with $175 billion of assets.

While FGB shareholders will hold 52 percent of the combined entity -- billed as a merger of equals -- the lender will operate under the National Bank of Abu Dhabi name and FGB’s shares will be de-listed, according to a statement on Sunday. NBAD will exchange 1.254 of its own shares for each FGB share, implying a 3.9 percent discount to the June 30 close. The chief executive officers of both banks will continue until the merger takes place, after which FGB managing director Abdulhamid Saeed will take over.

Abu Dhabi is combining its largest banks to better compete in size with regional rivals such as Qatar National Bank SAQ and bolster its ability to lend and secure funding as it grapples with a more than 50 percent drop in oil prices over the past two years. The merger may presage further consolidation in the United Arab Emirates’ financial services industry where about 50 lenders compete in a market of about 9 million people.

“Creating a megabank in Abu Dhabi will help the sovereign cut costs of funding for megaprojects and also reduce lenders in the overbanked country,” said Reda Gomaa, a portfolio manager at Mashreq Asset Management in Dubai. “The merger terms will bring NBAD’s valuation close to that of FGB.”

The transaction will end the tenure of Andre Sayegh and Alex Thursby as CEOs of FGB and NBAD respectively. Thursby joined NBAD almost exactly three years ago. Abdulhamid Saeed, the CEO designate, is a former Citibank Inc. employee.

Cost Savings

The plan will deliver savings of about 500 million dirhams ($136 million) annually, though integration costs will about 600 million dirhams. The Abu Dhabi government and related entities will own about 37 percent of the merged bank.

NBAD rose 4.4 percent to 10.05 dirhams at the 2:00 p.m. close, while FGB gained 2 percent to 12.70 dirhams. The Abu Dhabi Exchange’s benchmark index climbed 1.2 percent.

The combined bank will be among the largest in the Middle East and North Africa and hold about 26 percent of the U.A.E.’s outstanding loans. It will also have a presence overseas in cities including Singapore, Hong Kong, Geneva and London and combine FGB’s strength in consumer banking with NBAD’s position in wholesale banking and advisory.

 “We see very strong merits of the merger,” Jaap Meijer, a Dubai-based managing director for research at Arqaam Capital Ltd., said by telephone. With “NBAD buying FGB, the entity secures a better credit rating right away,” he said.

Spending Cuts

Abu Dhabi -- holder of about six percent of global oil reserves -- is cutting spending and tapping cash reserves to help plug a budget deficit exacerbated by the slump in crude prices. Last week, it said it planned to merge its two biggest state-owned investment companies, International Petroleum Investment Co. and Mubadala Development Co..

The combined bank will have a Tier 1 capital ratio of 15.7 percent and return on average equity of 14.1 percent. Its lending book is composed of 52 percent of loans to businesses, 26 percent to retail and 22 percent to the government sector, according to the statement.

A "bigger balance sheet will help the merged entity to tap more business and grab greater share of syndicated loans," Chiradeep Ghosh, a banking analyst at Securities & Investment Co. in Bahrain, said on Sunday. "It is a more favorable deal for NBAD.”

Foreign banks operating in the U.A.E. include the local units of Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc. State-owned Qatar National Bank, the gulf country’s largest lender, has expanded overseas because of its small home market.

The Abu Dhabi merger is expected to be completed by the first quarter of 2017 and needs approval from shareholders and regulators. Credit Suisse Group AG and Allen & Overy LLP advised NBAD on the deal, while UBS Group AG and Freshfields Bruckhaus Deringer LLP worked with FGB, according to the statement.

Before it's here, it's on the Bloomberg Terminal.