Shuaa is in merger talks with its largest shareholder ADFG

Both entities have formed working groups to evaluate the tie-up

Shuaa Capital increased assets under management to $14bn by the end of 2019. Jaime Puebla / The National
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Shuaa Capital is in talks with Abu Dhabi Financial Group, its biggest shareholder, for a possible merger. The news sent shares of the Dubai investment bank soaring by 15 per cent.

Both Shuaa and ADFG have set up working groups made up of senior executives to review the commercial potential of the tie-up. The management is also evaluating legal and structural aspects of the deal with the help of financial, legal and valuation advisers, the company said without naming any of the executives.

“Shuaa and ADFG have commenced discussions regarding the possibility of a merger of the two institutions to become a larger financial listed firm with the final structure subject to legal and regulatory consent,” it said on Sunday in a statement to the Dubai Financial Market, where its shares are traded.

ADFG, an alternative investment company with more than $20 billion in assets under management, bought a 48.36 per cent stake in Shuaa in 2016 and formed a strategy to turn around the struggling investment bank. The plan focused on growing assets under management, leveraging its balance sheet and expanding its business in Saudi Arabia and Egypt.

"On completion of the review, the working groups will provide their recommendations to the respective board of directors of each institution and, should a transaction be agreeable, seek regulatory approvals,” Shuaa said.

However, at this stage, there is no certainty that the talks will result in a merger, Shuaa said. The bank will update the shareholders and markets on any progress on the matter, "once an agreement is reached between the parties".

Shuaa shares in Dubai closed up 15 per cent at Dh0.715.

Shuaa capital's assets reached Dh2.1bn at the end of 2018.

This is the latest consolidation attempt by the UAE's banking and sovereign financial entities.
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.

On the sovereign front, the Abu Dhabi Investment Council tied up with Mubadala Investment Company, a move that raised Mubadala's assets under management to more than $225bn. Mubadala had previously combined with International Petroleum Investment Company in 2016, a union estimated to have saved 20 per cent in costs for Abu Dhabi's strategic investment company.

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.

Shuaa acquired a 4.8 per cent stake in Sharia-compliant lender Ajman Bank after the bank's rights issue in a deal worth Dh100m. The investment bank last year also snapped up a majority stake in Kuwait’s Amwal International Investment Company after Amwal shareholders, who collectively owned a 70.9 per cent share, agreed to sell their stake. Shuaa holds 87.22 per cent of Amwal.

Shuaa in 2018 said it is seeking a licence to add investment and initial public offering management in the UAE to its list of services.