Board of KFH and AUB have approved final share exchange ratio. Andrew Henderson / The National
Board of KFH and AUB have approved final share exchange ratio. Andrew Henderson / The National
Board of KFH and AUB have approved final share exchange ratio. Andrew Henderson / The National
Board of KFH and AUB have approved final share exchange ratio. Andrew Henderson / The National

Boards of Kuwait Finance House and Ahli United Bank agree terms of possible merger


Sarmad Khan
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  • Arabic

The boards of Kuwait Finance House and Ahli United Bank agreed on a share swap ratio, a crucial step in the former's bid to take over its smaller Bahraini counterpart and create a combined Islamic banking entity with $96.7 billion (Dh354.7bn) in assets.

The Bahraini entity said its board approved a final exchange ratio between the two lenders of one KFH share for every 2.325581 AUB shares, AUB said in a statement to Boursa Kuwait, where its shares trade.

“Approval of the … share exchange ratio does not imply that an official acquisition offer has been made by KFH,” AUB said.

The announcement follows KFH's statement last Thursday approving the terms, following due-diligence reports on AUB's books. A final decision on the deal is subject to approval from shareholders of both banks, central banks and other authorities in Kuwait and Bahrain, KFH said, without disclosing when a formal offer would be made.

The approved ratio is the same as the one announced in January, when the lenders hired HSBC and Credit Suisse as advisers to carry out financial and legal due diligence of each other’s accounts.

“Using that ratio, we calculate that AUB shares are trading at a 7 per cent discount to the share swap ratio- implied price,” Mohamad Al Hajj and Elena Sanchez-Cabezudo, equity analysts at Egyptian investment bank EFG Hermes, said in a research note on Sunday.

“This merger [assuming completion before May 2020] will increase KFH’s expected weight within MSCI Emerging Market Index by 8 basis points and increase expected flows in May 2020 by $370 million.”

KFH has tried to acquire AUB in the past, but talks stalled over a difference in valuation, Bloomberg reported.

Lenders in the Arabian Gulf are increasingly looking at mergers and acquisitions in a bid to gain scale and cope with tougher operating conditions against a weakening global economic backdrop. KFH’s bid to acquire AUB follows several recent merger deals in the Gulf, including the three-way tie-up between Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank in the UAE.

Dubai Islamic Bank, the biggest Sharia-compliant lender in the UAE, is in the process of taking over its smaller rival Noor Bank, while National Commercial Bank in Saudi Arabia is pursuing a merger with its competitor Riyad Bank.

National Bank of Bahrain, a majority government-owned lender, is in discussions with Bahrain Islamic Bank about a potential offer for the Sharia-compliant entity as it looks to widen its client base and expand its reach into the Islamic banking market, it said in August.

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Tearful appearance

Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday. 

Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow. 

She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.

A spokesman said her upset demeanour was due to a personal matter.

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Strait of Hormuz

Fujairah is a crucial hub for fuel storage and is just outside the Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.

The strait is 33 km wide at its narrowest point, but the shipping lane is just three km wide in either direction. Almost a fifth of oil consumed across the world passes through the strait.

Iran has repeatedly threatened to close the strait, a move that would risk inviting geopolitical and economic turmoil.

Last month, Iran issued a new warning that it would block the strait, if it was prevented from using the waterway following a US decision to end exemptions from sanctions for major Iranian oil importers.