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HSBC, RBS Saudi Bank ventures reach initial deal on merger terms

17 May 2018

"The merger, should it go through, would dilute the shareholdings of HSBC (40 per cent in Sabb) and RBS (40 per cent in Alawwal) in the combined entity".

The 18.6 billion riyal ($4.96 billion) deal between Alawwal and larger rival Saudi British Bank (SABB) will reduce RBS's stake in the merged group to around 5 percent, compared to a stake of around 15 percent in Alawwal, the source said.

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", they said.

Alawwal pointed out that while discussions were now at an advanced stage, any binding agreement to proceed with a merger would still be subject to a number of conditions, including shareholder and regulatory approvals.

Merger talks began past year but progress had taken longer than expected, partly because the regulatory environment for bank acquisitions in Saudi Arabia is relatively untested.

The source said it also marked a milestone for RBS, bringing the bank's decade-long effort to rid its balance sheet of trillions of dollars in unwanted assets closer to a conclusion.

RBS, which acquired its stake in Alawwal via its 2007 purchase of ABN Amro, has been looking to sell it for a number of years as it retreats from global operations and tries to bolster its capital base.

This amounted to around 5.9 billion pounds ($7.95 billion) in related risk-weighted assets on the bank's balance sheet, which can now be reduced to 1 billion pounds.

This announcement does not mean that the proposed merger will be agreed between the two parties or that an offer will be eventually made by SABB to Alawwal Bank shareholders in relation to the proposed merger.

"The merger would be a win-win situation".

A potential merger would value Alawwal's existing issued ordinary share capital at approximately about 18.6 billion riyals (S$6.7 billion) and a premium of 29 per cent on Monday's closing price.

Following the announcement of the preliminary merger agreement, Alawwal Bank share price rose 10% to SAR 13.92 ($3.7), while SABB's share price fell 4.5% to SAR32 ($ 8.5).

FGB and NBAD of Abu Dhabi completed a merger previous year to form First Abu Dhabi Bank (FAB), the UAE's largest by assets.

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.

HSBC, RBS Saudi Bank ventures reach initial deal on merger terms