Emirates NBD, Dubai’s biggest bank, agreed to pay 15.48 billion Turkish lira ($2.8bn) to Russia’s Sberbank to buy its stake in Turkish lender Denizbank, sending its shares soaring to the highest in nearly a decade as it saves over $400 million in the revised sale price as the lira decpreciates.
Under the revised terms of agreement signed on April 2 with the Russian lender, Emirates NBD expects the transaction to be “completed by the end of second quarter, subject to regulatory approvals”, it bank said on Wednesday in a statement to the Dubai Financial Market, where it shares are traded.
Shares of Emirates NBD, soared as much as 7.4 per cent during Wednesday’s trading to Dh11.3, hitting its hits highest level since May 2008. They were trading 4.7 per cent higher at Dh11.25 at 11.53am UAE time.
The first share purchase agreement between Emirates NBD and Sberbank was announced on in October last year in which both lenders agreed on a sale price of 14.6bn Turkish lira, which was worth about $3.2bn at the time.
Despite increasing the total revised price in lira, Emirates NBD is still saving over $400m due to depreciation in the value of the Turkish currency on the back of mounting political uncertainty and deepening woes for the economy, the 17th largest in the world.
Turkey, Nato’s second most populous country, slipped into recession for the first time in a decade last month. It was a blow for President Recep Tayyip Erdogan, who lost major Turkish cities in bellwether municipal elections in April. Lira is the third-worst performing emerging market currency this year, falling 3 per cent against the US dollar.
The currency, which tumbled almost 30 per cent against the dollar in last year's currency crisis, swung widely last week, as confidence in the economy waned and the government and central bank imposed a series of measures to support it.
The equity capital Denizbank, the fifth largest private bank in Turkey, amounted to 15.51bn lira at the end of the last year, Emirates NBD said on Wednesday.
Emirates NBD has “managed to renegotiate the price down by 16 per cent in US dollar terms,” EFG Hermes said in a research note to investors on Wednesday. “We estimate [about] 400basis point impact on ENBD’s core capital as a result of this acquisition.”
Post acquisition, Emirates NBD would still have a satisfactory level of capital, and with the gain on the initial public offering of its affiliate Network International in London, the lender is expected to still do a rights issue, according to EFG Hermes.
“We believe the foreign ownership limit increase is still very likely to happen”, however, investors will have to be patient for it and wait for the Denizbank deal to be finished and the rights issue to take place.
“In terms of timeline we would expect the FOL [foreign ownership limit] hike to come by the end of this year. For the bank to benefit from FTSE inclusion, the FOL must come before the end of December 2019,” the Egyptian bank noted.
The Turkish deal is the second major acquisition for Emirates NBD since buying in 2013 BNP Paribas’s Egyptian unit in a $500m transaction.
“The transaction represents a significant milestone for Emirates NBD and is expected to be accretive to shareholders in the first year," Shayne Nelson, Group chief executive of Emirates NBD, said in an October 2018 statement.
Emirates NBD, which has operations in Egypt, Saudi Arabia, India, Singapore, the United Kingdom, and representative offices in China and Indonesia, is expanding its footprint to boost revenue amid limited opportunities for growth in the over-banked UAE market, where more than 50 lenders compete for business.