Abraaj buys 49% stake in Emirates NBD payment arm

Abraaj Capital's purchase of Network International is one of the largest private-equity transactions in recent years.

Abraaj Capital, the region's largest buyout firm, is paying Dh2 billion (US$544.5 million) for almost half of the payment-processing business of the UAE's largest bank.

Abraaj's purchase of 49 per cent of Emirates NBD's Network International represents one of the largest private-equity transactions in the UAE in recent years. Buyout activity has declined sharply in the region since the onset of the financial crisis, with just $1.48bn of deals involving companies in the Middle East in the third quarter of the year, compared with $15.6bn in the third quarter of last year, according to Zephyr, a research firm.

"Given its wide footprint across the entire value chain of transaction processing services, Network International is ideally positioned to take advantage of the continuing shift from cash-based to electronic transactions and to capitalise on the massive growth potential of the region in light of the current under-penetration of payment cards," said Mustafa Abdel-Wadood, the managing director of Abraaj Capital and the chief executive of Abraaj Investment Management.

The Dh2bn purchase price is contingent on Network International meeting undisclosed profit targets, said Abraaj, which is based in Dubai. The deal was the first acquisition for Abraaj's fourth buyout fund and was financed partly by Emirates NBD.

The transaction now awaits regulatory approval, which the companies expect to receive in the first quarter of next year. It follows the announcement on Tuesday that ASAS, a property fund run by Abraaj, made its first acquisition, buying an office building in Cairo for an undisclosed sum.

Network International provides credit-card payment processing services to 70 banks and 17,000 merchants. Its 45,000 card readers are in 28,000 stores across the region, Abraaj said yesterday.

The company also operates about 700 ATMs in the Gulf and has partnerships with global networks including American Express and Diners Club.

In addition to payment processing, Network International consults with financial companies on payment software and services.

"Today, Network International is at the forefront of the regional trend towards electronic payments," said Abdulla Qassem, its chairman. "We believe that through its continued investment in technology, people and customer relationships, Network International will build on its history of innovation and industry leadership, expanding into new markets and consolidating its status in existing ones."

Murad Ansari, a banking analyst at EFG-Hermes, said the deal was somewhat surprising because Emirates NBD did not appear to be in dire need of cash. The bank was flush with liquidity, he said, after raising money by selling car loans to Japanese investors this year and conserving cash to deal with a rise in loan defaults. The bank had about Dh20bn of cash on its balance sheet, he said.

"I don't think they need a lot of cash," he said. "[The Dh2bn price] is a big amount, but Emirates NBD's balance sheet is huge, and they have very strong liquidity."

Despite its cash cushion, Emirates NBD recorded a third-quarter profit of Dh423.9m, down by 60 per cent compared with the same period last year. Its share price closed unchanged yesterday on the Dubai Financial Market at Dh2.90.