Dubai's Shuaa and ADFG appoint banks to advise on potential merger

The two companies also hire lawyers to advise on the deal

Shuaa Capital increased assets under management to $14bn by the end of 2019. Jaime Puebla / The National
Shuaa Capital increased assets under management to $14bn by the end of 2019. Jaime Puebla / The National

Dubai investment bank Shuaa Capital and Abu Dhabi Financial Group, its largest shareholder, have both appointed legal and financial advisors on a potential merger to create a larger listed investment banking institution in the UAE.

Swiss bank UBS is advising Shuaa, which has also hired law firm Linklaters as legal adviser on the transaction, a person familiar with the matter told The National. ADFG, the Abu Dhabi-based alternative investment firm with $20 billion of assets under management, has chosen US lender JP Morgan and law firm Herbert Smith to work on the deal, a spokeswoman for ADFG confirmed on Monday.

On Sunday, Shuaa said it is in talks with ADFG for a possible merger and both entities have set up working groups made up of senior executives to review the commercial potential of the tie-up.

The Shuaa management is also evaluating legal and structural aspects of the deal with the help of financial, legal and valuation advisers, it said on Sunday in a statement to Dubai Financial Market, where its shares are traded.

The news sent its shares soaring 15 per cent at close on Sunday. The stock added another 13.4 per cent at the end of the trade on Monday to reach Dh0.811.

Spokespersons of UBS and Herbert Smith did not immediately respond to emailed requests for comment. Shuaa and JP Morgan declined to comment. Linklaters confirmed it was advising on the deal.

ADFG bought a 48.36 per cent stake in Shuaa in 2016 and formed a strategy to turn around the investment bank. The plan focused on growing assets under management, leveraging its balance sheet and expanding its business in Saudi Arabia and Egypt.

Upon completion of the review, the working groups of both firms will submit their recommendations to the respective boards and if a transaction is agreed will seek regulatory approvals, Shuaa said in the bourse filing on Sunday.

This is the latest consolidation attempt by the UAE’s banking entities to gain scale and better face the challenging market conditions.

Abu Dhabi Commercial Bank is in the process of merging with Union National Bank and Al Hilal Bank to create the third-largest banking institution in the country. When the deal is completed in May, it will create a banking power house with an asset base of Dh420bn.

In 2017, two of Abu Dhabi’s biggest lenders, National Bank of Abu Dhabi and First Gulf Bank, merged to become First Abu Dhabi Bank, creating an entity with an asset base of $188bn.

Shuaa Capital, which was once among the region's top home-grown investment banks, fell on hard times after the global financial crisis in 2008. It shrunk its operations as a result of mounting losses but swung to a profit in the fourth quarter of 2017, and posted the strongest full-year net profit in 10 years. Shuaa has since strengthened its investment banking business and is eyeing growth through acquisitions of financial assets across the markets in the six-member economic bloc of the GCC and Egypt.

In 2017, Shuaa and Bahraini investment bank GFH Financial Group were talking of a merger, but the discussions were called off in June that year. ADFG is also a shareholder in GFH.

Updated: March 25, 2019 05:27 PM


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