Oman Arab Bank submits offer to take over Alizz Islamic Bank

The share swap deal, if successful, will see Alizz becoming an Islamic banking entity of Oman Arab Bank

The MSM-listed Alizz banks says it has received a share swap offer from Oman Arab Bank. Silvia Razgova / The National

Oman Arab Bank (OAB), a subsidiary of Omani conglomerate Ominvest, has made a share swap offer to take over Muscat-listed Alizz Islamic Bank, more than a year after signing a preliminary agreement to explore a merger.

The offer proposes a swap ratio where Oman Arab Bank Shareholders will own 81 per cent of the combined entity, and Alizz shareholders the remaining 19 per cent.

“OAB will issue its shares to Alizz shareholders based on the agreed swap ratio,” OAB’s parent Ominvest said in a regulatory filing to the Muscat Securities Market on Tuesday.

Islamic lender Alizz bank said in a separate statement that its board of directors will review the offer and the potential transaction structure. It did not say when a decision would be made on the merger offer.

“The final structure will result in OAB becoming a listed holding company and AIB [Alizz] …. becoming a fully-owned Islamic banking subsidiary,” OAB said in its offer letter.

The two Muscat-based lenders said in May last year they were exploring the possibility of a strategic collaboration that could lead to an eventual merger of the two entities. A preliminary agreement pledging to continue merger talks was signed last year, when legal and financial advisers were also appointed to conduct due diligence.

The proposed deal would be credit positive for OAB and provide it with a larger Islamic franchise and asset base, “allowing it to improve its interest income and deposit-gathering ability”, Moody Investors Service said in an October 2018 report.

It would also help the bank capitalise on the fast-growing Islamic banking segment in Oman, it added.

The deal, if successful, will be a continuation of the consolidation trend underway in the Gulf's banking sector. Bank mergers in the region have picked up pace in recent years as lenders combine their balance sheets to gain scale and drive efficiencies to face tough market conditions against a weaker global economic backdrop.

Dubai Islamic Bank’s takeover of its smaller rival, Noor Bank, is the latest deal nearing completion. DIB, the UAE's biggest Sharia-compliant lender, received shareholder approval earlier this month for the acquisition through a capital increase and share swap to create a banking entity with assets of more than Dh275 billion.

This follows the merger of National Bank of Abu Dhabi and First Gulf Bank to create First Abu Dhabi Bank, a banking powerhouse in the UAE, and a three-way tie-up between Abu Dhabi Commercial Bank, Union National Bank and Islamic lender Al Hilal bank earlier this year.

Elsewhere in the region, the boards of Kuwait Finance House and Ahli United Bank in September 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 more than $96.7bn in assets.