Dubai Islamic Bank (DIB) paid almost Dh375 million (US$102.1m) last year to take over Tamweel in a deal that set the stage for the resumption of business at the Islamic mortgage giant following a two-year freeze.
The transaction was completed on November 4, according to annual financial statements DIB released at the end of last week, with the bank grabbing a 58.3 per cent stake. It had said it was raising its stake in Tamweel in September, without disclosing the price.
The Dh374.7m DIB paid equated to about Dh1 per Tamweel share, according to Bloomberg News calculations, a price some analysts said was higher than they expected. DIB paid with Dh318.6m in cash and Dh56.1m in its own shares.
"If you look at Tamweel's historical figures, most of the growth in their loan book was in 2008, just before the property crisis hit the UAE," said Shabbir Malik, a banking analyst at EFG-Hermes in Dubai.
"A lot of risk in the balance sheet was because of that, and now that they've paid Dh1 [a share] for it, this suggests that the price they paid reflects the fact that the quality of the book was not great."
The price, he said, was well below book value, or the value of Tamweel's net assets divided by the number of outstanding shares. Tamweel put the book value of its shares at Dh2.23 in its results for last year.
The company's shares have been suspended from trading on the Dubai Financial Market General Index since late 2008, when the onset of the financial crisis forced it to cease financing activities. They last traded at Dh0.99 on November 20, 2008.
DIB acquired its majority stake last year from Tamweel's former main shareholders, including Istithmar World and Dubai Capital Group. Before the transaction, DIB owned 21.6 per cent of Tamweel.
The takeover ended drawn-out talks about a merger between Tamweel and Amlak Finance, the UAE's other major Islamic home financing company. It also gave Tamweel access to DIB's funding and financial resources, allowing it to resume financing activity.
Both Amlak and Tamweel halted lending in late 2008, and a government panel was formed in November to orchestrate a combination. The panel considered but ultimately scrapped a variety of plans to rescue the companies.
After DIB's takeover, Tamweel announced the resumption of financing in early November, tempting customers with up to 80 per cent financing and profit rates - the Shariah-compliant equivalent of interest rates - on a par with those offered by conventional banks. Tamweel upped the ante in January, offering mortgage rates of 4.99 per cent, the lowest in the country.
But while the takeover has helped Tamweel, Mr Malik said it was less positive for DIB given the exposures it added to Dubai's embattled property market.
"Although I think the deal is beneficial for Tamweel, I don't see this as a positive development for DIB," he said. "Their exposure to real estate is going to grow bigger and their liquidity will be used up."
Shares of DIB, which also trade on the Dubai Financial Market, closed up 0.45 per cent yesterday at Dh2.23.