Banking's Ups and Downs


Economic News

22 Jul 2010
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It has been a mixed week for Qatar's banking sector, with one major takeover being given the initial thumbs up while another finally slipped beneath the waves after weeks of discussion, claims and counter-claims.

On August 16, the Commercial Bank of Qatar (CBQ) announced that it had gained a preliminary agreement from the shareholders of the Sharjah-based United Arab Bank (UAB) to acquire a major stake in the lender and to enter into a management services agreement.

Though no exact details of how large a stake CBQ will take in UAB have been released, the announcement of the deal was something of a step forward, with the Qatari bank having said on July 29 that it was in talks with UAB to buy a minority shareholding.

Under the UAE's banking laws, foreigners are prohibited from holding more than 49% of the shares of a local bank. CBQ's latest statement suggests it is looking to hit or come close to this limit as part of its aim at gaining managerial control.

If it takes control of UAB, CBQ will gain a strong foothold in the UAE market. Currently, UAB has nine branches across the emirates, three in Dubai and one in Abu Dhabi, which are two of the most active financial hubs in the Gulf.

In a statement issued by the bank, it said it had signed a memorandum of understanding (MoU) with the UAB and its shareholders.

"The parties are now proceeding with due diligence, negotiating appropriate documentation, and seeking the regulatory and other consents required to complete the transaction," the statement said.

The deal still has to be given the all clear by regulatory bodies, including the central banks of both Qatar and the UAE.

Already Qatar's second largest lender, the acquisition of a major stake in UAB would further advance Commercial Bank's campaign to develop into a regional player, having bought a 34% stake in National Bank of Oman in 2005.

While one banking deal was taking off, another came to earth with a resounding crash. On August 15, International Bank Qatar (IBQ) effectively closed the books on its bid to gain control of the Bahrain-based Ahli United Bank (AUB), ending plans for the largest cross-border company takeover in the Gulf region.

IBQ's offer had been valued at $6.1bn, but this was withdrawn on August 15, with the Qatari bank issuing a statement saying it had become aware potential vendors of shares in AUB had stopped negotiations with IBQ and had rejected IBQ's request to perform due diligence in accordance with international practice.

IBQ's bid had begun to look shaky the previous week, after the Tamdeen Investment Company of Kuwait, the second largest shareholder in AUB, announced that it had turned down the Qatari offer. Tamdeen's announcement was a reversal of its earlier position, having issued a statement in July that it and other stakeholders in Ahli had agreed in principle to accept IBQ's bid, which involved paying $2.25 per share in a combined cash and stock deal.

Tamdeen, which holds 13% of AUB's shares, has not divulged the reasons for withdrawing its support for the sale, though it could have been motivated by additional interest in the bank. According to local media, as many as three other groups could put in an offer for AUB, with a leading Egyptian bank, and investors from both Qatar and Jordan, none of which were named, all said to be considering submitting a bid.

News of Tamdeen's shift, and the subsequent abandoning of IBQ's bid, had an immediate impact on Ahli's shares, which shed more than 17.4% on August 12 and 13 alone. However, this still left AUB well up, its shares having gained 71% since initial reports of a takeover surfaced in April.

The due diligence issue centred around IBQ's request to have full access to Ahli United's books, a move rejected by the bank's shareholders, who insisted that an independent accessor go through the accounts.

In a statement issued on August 6, less than a week before it pulled the plug on its offer, IBQ said that discussions with AUB shareholders appeared to have stalled.

"The vendors are insisting on a neutral party but IBQ, as potential buyer, feels it should be able to use its staff or outside parties in line with international market practice," it said.

In turn, Tamdeen said the bank had reservations about opening its books to IBQ in case the deal did not go through.

Such has been the case, leaving IBQ empty handed and Ahli's shares tumbling. But all does not seem lost as IBQ continues to court other suitors.

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