Moody's views merger of EBI and NBD positively

DUBAI — Moody's Investors Service said yesterday that it considers the impending merger between Emirates Bank International (EBI) and National Bank of Dubai (NBD) as a very significant and positive development for both banks and the banking industry in the UAE in particular and the Gulf Cooperation Council in general.

By A Staff Reporter

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Published: Sat 21 Jul 2007, 8:56 AM

Last updated: Sat 4 Apr 2015, 10:21 PM

However, commenting on the recent joint statement from the two banks providing more details on the merger, Moody's believes it is still too early to determine the outcome of the planned changes and their possible impact on the banks and their ratings.

Currently both banks have bank financial strength ratings of C- and local and foreign currency deposit ratings of A1/Prime-1. The outlook on all ratings of both banks is stable.

Subsequent to the announcement of the merger in March 2007, the banks have announced significant preliminary details of the merger, including the creation of a holding company known as Emirates NBD (ENBD). In the near-term, EBI and NBD will operate as independent subsidiaries of ENBD under a single board and management. As the process evolves, Moody's anticipates that, in light of the regulatory and legal requirements that need to be addressed, the integration will come to fruition over a 18 to 24 month horizon when ENBD will emerge as an operating institution, on the platform of the merged entities.

The offer to the shareholders of the banks is one EBI share for one ENBD share and one NBD share for 0.95 share of ENBD, which represents a 14 per cent premium on the price of NBD shares on the day prior to the announcement.

The offer has to be accepted and endorsed by an exchange of shares of more than 51 per cent of the shareholders of both banks. Assuming acceptance of all the shareholders, ENBD would constitute 66 per cent of the shareholders of EBI and 34 per cent of the shareholders of NBD. Moody's understands that the government of Dubai will continue to hold 51 per cent or more of the shareholding in the merged institution. EBI and NBD will each have 6 directors on the 12-man board of directors of ENBD.

"Moody's believes that ENBD will benefit from a stronger franchise and capitalisation, an expanded product range, greater geographic reach and better positioning in the corporate and retail business. Going forward, the synergies expected will generate a better value proposition for the merged entity," said Peter Carvalho, vice-president-senior analyst at Moody's Middle East office, in Dubai. In Moody's opinion, the merged institution could enjoy a significantly enhanced franchise, with diversified business lines, which could have positive rating implications.

Some of the issues that are of concern to Moody's are: Success in achieving a seamless integration of the two banks, the impact on the business as the banks operate independently, while working towards the common merger goals, the possible attrition of business,

realisation of the expectations, ie cost and revenue synergies and the smooth intermingling of the corporate cultures of the two institutions.

In Moody's view, these issues are accentuated due to the extended timeframe the operational merger might take.

ENBD, based on figures at the close of December 31, 2006, will have total assets of Dh165.2 billion, loans of Dh102.5 billion and customer deposits of Dh95.3 billion, which translates into market shares of 19.2 per cent of total assets, 21.7 per cent of total loans and 18.4 per cent of total deposits, as well as a network of 100 branches in the UAE, making it the largest bank in the UAE and the largest in the GCC in terms of total assets.

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