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Turkey Becoming a Battleground for Gulf Lenders' Expansion

Updated on
  • Emirates NBD is holding talks to buy Sberbank’s Turkey unit
  • Gulf-based banks are seeking to expand in growth markets

Dubai’s biggest bank is in talks to potentially acquire Sberbank PJSC’s wholly-owned Turkish unit, joining peers from Qatar and Kuwait that have expanded in the country.

Emirates NBD PJSC started preliminary discussions for Denizbank AS, it said in a statement on Tuesday. Moscow-based Sberbank is also holding discussions with other banks from the Gulf Cooperation Council region, people familiar with the matter said, asking not to be identified because the talks are private.

A deal for the 99.9 stake could be valued at as much as $4.12 billion, according to Bloomberg calculations. Denizbank had a book value of $3.44 billion at the end of September and Turkish banks trade at an average of 1.2 times book value, according to data compiled by Bloomberg.

Gulf lenders are seeking to boost their presence in Turkey with acquisitions and license applications as they face limited expansion opportunities at home. Qatar National Bank SAQ in 2016 bought National Bank of Greece SA’s Turkish unit for 2.75 billion euros ($3.4 billion), while Commercial Bank of Qatar QSC acquired a 71 percent stake in Alternatifbank AS from Anadolu Group in 2013.

A Denizbank sale would be a small positive for Sberbank, Colin Croft, a portfolio manager at Jupiter Asset Management, said in a news conference in London. “It depends on the price, but it will probably be taken quite well because it would make the story a bit easier to understand.” Jupiter holds about 11.8 million shares of Sberbank, according to data compiled by Bloomberg.

‘Favorable Dynamics’

“With several GCC banks already present in Turkey and given the geographical proximity, lenders are familiar with the Turkish economy and banking system,” said Trieu Pham, an emerging-markets credit-strategy analyst for MUFG Securities in London. “Turkey provides favorable dynamics with a large and young population and high GDP growth. Most of the larger banks in Turkey are relatively profitable as well.”

Denizbank rose as much as 20 percent to 5.77 liras in Istanbul, the highest in more than three years. Emirates NBD shares closed up 6.5 percent, the biggest jump for two years. Sberbank climbed as much as 3.4 percent in Moscow.

Saudi and Kuwaiti lenders have long had a presence in Turkey. National Commercial Bank, Saudi Arabia’s biggest lender, bought 60 percent of Turkiye Finans Katilim Bankasi AS for $1.08 billion in 2007 and Kuwait Finance House set up a wholly-owned unit in the country in 1989.

Overseas Investment

For Emirates NBD, an acquisition would be its second major overseas investment. In 2013, it bought BNP Paribas SA’s Egyptian unit in a $500 million deal. The bank in September said it plans to deepen its footprint in Egypt and develop other offshore locations.

Emirates NBD “has one of the strongest capital adequacy ratio in the U.A.E. and they have been blatantly keen on unlocking their capital for a potential acquisition rather than walking down the lane of returning capital to shareholders via dividend payments,” said Aarthi Chandrasekaran, vice president for research at Shuaa Capital in Dubai. The lender had $19.6 billion in cash and cash equivalents at the end of December.

Sberbank, which has been under U.S. and European Union sanctions since 2014, bought Dexia SA’s Turkish unit Denizbank for about $3.5 billion in 2012 after placing a higher bid than QNB. Denizbank is Turkey’s seventh-largest lender, according to data compiled by Bloomberg.

“In 2012, when Sberbank had excess capital it spent it on inorganic growth, buying assets in Turkey and Europe,” VTB Capital analyst Mikhail Shlemov said from Moscow. “That didn’t work out so well, so it’s good to see them changing their focus to shareholder returns.”

— With assistance by Jake Rudnitsky, Filipe Pacheco, Ercan Ersoy, Archana Narayanan, and Selcuk Gokoluk

(Adds Sberbank investor’s comment in fifth paragraph, updates share prices.)
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