Arab News, Thursday, May 17, 2018 | Ramadan 1, 1439
Alawwal and SABB merger to create Saudi Arabia’s third largest bank
Saudi Arabia: Saudi British Bank
(SABB) and Alawwal Bank have agreed to merge, in a move that would create the
Kingdom’s third-biggest lender with assets of around $77 billion, the
institutions announced on Wednesday.
The agreement will see SABB — 40 percent owned by the UK’s HSBC — acquire
Alawwal, which is 40 percent owned by Royal Bank of Scotland — for 18.6 billion
riyals ($4.96 billion).
The banks made the announcement on the Saudi stock exchange Tadawul on
The merger, initially flagged as a possibility by the banks in April, is the
first major deal of its kind in the Kingdom’s for around 20 years. It will
create a lender only exceeded in size in the country by National Commercial Bank
The banks’ boards have reached a non-binding agreement on the share exchange
ratio, subject to several conditions, the institutions said in separate filings.
“A binding agreement is yet to be entered into between Alawwal Bank and SABB,”
the two banks said. “Any binding agreement to proceed with the merger will be
subject to a number of conditions, including SAMA [central bank], other
regulatory authorities, and the shareholders’ approval.”
Based on the preliminary agreement, Alawwal shareholders would receive 0.485
SABB shares for each Alawwal share, it was announced.
Based on the exchange ratio and the closing price of 33.5 riyals ($8.93) per
SABB share on Monday, the last trading day before the announcement, the merger
would value each Alawwal share at 16.3 riyals and Alawwal’s existing issued
ordinary share capital at approximately 18.6 billion riyals, the statement said.
This represents a premium of 28.5 percent to the Alawwal share price, the banks
The combined entity is valued at a price-to-book ratio of 1.4, according to
calculations by Saudi Fransi Capital, which added that the deal significantly
strengthens HSBC’s presence in the Kingdom.
“It is already a premium player in investment banking, and this will only
reinforce its credibility for government and premium corporates,” the bank said
in a research note, indicating it was likely to attract “a lot of lucrative
mandates” linked to the country’s economic transformation in the coming five to
Alawwal shares surged 10 percent on the announcement, while SABB retreated 4.5
percent, as part of a wider sell-off on the Tadawul.
Progress on the merger had taken longer than expected, partly because the
regulatory environment for bank acquisitions in Saudi Arabia is relatively
untested. Shareholders were also assessing any potential impact from the
Kingdom’s anti-corruption drive, two sources told Reuters in January.
The steps still to be agreed include completion of confirmatory due diligence,
finalization of the merger deal and agreement on a number of other commercial
issues, the banks said.
The merger follows similar tie-ups in recent years by banks in Abu Dhabi, Qatar
and Bahrain, as part of national economic consolidation programs coming in the
wake of lower oil prices.
FGB and NBAD of Abu Dhabi completed a merger last year to form First Abu Dhabi
Bank (FAB), the UAE’s largest by assets.
The SABB-Alawwal deal, by contrast, is primarily motivated by the desire by RBS
to exit the Saudi market, according to Aqib Mehboob, a senior analyst with Saudi
“This merger appears to be driven more by facilitating an exit for RBS from KSA
due to capital requirements for RBS, as generally European banks are pulling
back from emerging markets due to new regulatory requirements,” he told Arab
“We believe that the regulator (SAMA) feels that the market can support more
financial services providers, particularly as Vision 2030 is implemented.
Therefore, we do not believe that SAMA is pushing for further consolidation
among domestic banks.”
In March rating agency Moody’s Investor Service said that it expected Saudi
Arabia’s banks to outperform regional peers in 2018, thanks to improvements in
the Kingdom’s economy and higher interest rates.
Moody’s predicted that commission and fee income at the country’s bank will grow
5 percent this year, with a rise in government prompting a recovery in trade and
foreign exchange transactions.