ADCB, UNB, Al Hilal merge to form Dh420 billion bank

Dubai - It will also become the second largest retail lender in the UAE by assets, with 21 per cent share of retail loans

The third largest banking group in the UAE with total assets of Dh420 billion will be formally launched soon following a decision announced on Tuesday by Abu Dhabi Commercial Bank (ADCB) and Union National Bank (UNB) to merge, and to acquire Al Hilal Bank.

The new banking group, the fifth largest in the GCC, will carry the ADCB identity.

The combined entity will be the second largest retail lender in the UAE by assets, with 21 per cent share of retail loans as well as a strong Islamic banking platform as the third largest Islamic banking franchise in the UAE.

The transaction of the three-way merger, the fourth major banking industry consolidation in the UAE in recent times, has been recommended unanimously to shareholders by the boards of ADCB and UNB, and is subject to regulatory and shareholder approvals to be sought in the coming weeks, a joint statement issued by the three lenders said.

In the UAE, merger talks have been underway among local banks following the successful merger of the National Bank of Abu Dhabi and First Gulf Bank in 2017 to create the Dh671 billion First Abu Dhabi Bank. Emirates NBD, which came into being after the merger of National Bank of Dubai and Emirates Bank International in 2007, has assets of Dh477 billion while the merger of Dubai Bank and Emirates Islamic Bank led to the formation of Emirates Islamic Bank in 2012.

ADCB chairman Eissa Mohamed Al Suwaidi becomes Chairman designate of the new banking group and Mohamed bin Dhaen Al Hamli vice-chairman designate. ADCB CEO Alaa Eraiqat becomes the group CEO designate.

Al Hilal Bank will be taken over via a mandatory convertible note for up to 117.6 million post-merger ADCB shares to Abu Dhabi Investment Council after the completion of the statutory merger.

The new banking group will continue to benefit from strong institutional backing, through the Government of Abu Dhabi's majority ownership.

Al Hilal Bank will retain its existing name and brand and operate as a separate Islamic banking entity within the group.

ADCB will reinforce its position as the third largest financial institution in the UAE and will become the fifth largest in the GCC with around one million customers, accounting for a significant share of the UAE market as follows - 15 per cent of total assets; 21 per cent of retail loans, and 16 per cent of deposits.

"Greater scale will permit larger scope for financing to support the UAE's economic agenda for diversification and growth, and more investment in the bank's people, technology and infrastructure," said the statement.

The proposed transaction between ADCB and UNB will be executed through a statutory merger. ADCB will issue 0.5966 ADCB shares for every UNB share, corresponding to a total of 1,641,546,697 new shares issued to UNB shareholders. The exchange ratio implies a premium to UNB shareholders of 0.6 per cent versus the closing price of the previous trading day (January 28, 2019) and 13.7 per cent versus the pre-leak share price3.

On the effective date of the merger, UNB shares will be delisted from the Abu Dhabi Securities Exchange. The combined bank will retain ADCB's legal registrations. Al Hilal Bank will be acquired by the combined ADCB/UNB entity, for a consideration of approximately Dh1 billion.

The three banks will continue to operate independently until the combination becomes effective, which is expected within the first half of 2019. The combination is subject to approvals by shareholders and relevant regulators, including the UAE Central Bank. The transaction requires the approval of at least 75 per cent by value of the shares represented at quorate general assembly meetings of each of ADCB and UNB.

Following completion of the merger and the acquisition process, the Government of Abu Dhabi, through the Abu Dhabi Investment Council, will own 60.2 per cent of the combined bank. Other ADCB shareholders will own 28 per cent and other UNB shareholders will own 11.8 per cent of the combined bank.

The new board and management of the combined bank will assume their new roles when the transaction becomes effective.

"This is a very exciting transaction that will create a larger, preeminent and resilient banking group. It is a landmark deal for the UAE that will contribute significantly to our national ambitions," said Al Suwaidi.

He said the enlarged ADCB would have the scale and expertise to play a central role in the next stage of the UAE's economic development. "By building on past successes to produce an even stronger, performance-driven and customer-centric institution, the combined bank will continue to set high standards for the UAE banking sector and contribute to Abu Dhabi's development into a global financial centre."

Eraiqat described the transaction as a confident and transformational move that creates a new, robust and agile financial institution, built on a strong track record in conventional and Islamic banking.

"The new bank is well-positioned to provide support for the UAE's economic vision, and actively participate in the country's growth and diversification. We look forward to creating a bank that will thrive in the region's fast changing economic environment, while creating sustainable value for customers, employees, investors and communities," said Eraiqat.

The consolidation is expected to deliver cost synergies of approximately Dh615 million annually on a run rate basis, which equates to around 13 per cent of the three banks' combined cost base, above the global benchmark of between eight per cent to 10 per cent for similar domestic transactions.

"These benefits are expected to be realised over two to three years. The transaction has high potential for creation of shareholder value. It is expected to produce an uplift in earnings per share for the shareholders of the three banks in a steady state, with the combined bank expected to deliver double-digit returns on equity," said the statement.

- issacjohn@khaleejtimes.com