Saudi bank NCB plans $15.6bn takeover of rival Samba

National Commercial Bank, Saudi Arabia’s largest lender by assets, proposed to pay as much as $15.6bn to acquire rival Samba Financial Group in what could become the biggest banking takeover this year.

NCB offered to pay a premium of as much as 27.5 per cent to Samba’s closing price on Wednesday, according to a statement on the Saudi stock exchange.

NCB will issue as many as 1.54 billion new shares to Samba shareholders, it said.

Saudi Arabia has been taking steps to shore up its banking sector from the double whammy of the coronavirus shock and lower oil prices. Lenders in the world’s largest oil exporter – already dealing with weak private sector loan growth – are expected to be hit hard as lockdown measures and lower government spending impact earnings and increase defaults.

$27 billion stimulus
The kingdom’s central bank, the Saudi Arabian Monetary Authority, has unveiled almost $27bn in stimulus packages in recent months to support banks, help private sector employment and credit.

The combined bank would have total assets of about $210bn, making it the third largest in the region behind Qatar National Bank and First Abu Dhabi Bank, according to data compiled by Bloomberg.

The high end of the NCB valuation comes from multiplying 29.32 riyals a share by Samba’s outstanding shares, according to data compiled by Bloomberg.

NCB doesn’t expect the merger to result in any involuntary redundancy, it said.

“Samba is likely to offer value to NCB with a strong franchise in large corporates and capital market operation,” said Edmond Christou, a banking analyst at Bloomberg Intelligence.

“Samba has one of the best capital and liquidity position, and it has consistently managed its credit quality prudentially and its cost of risk below the industry. For Samba, this could mean better position in retail space and closer ties to public sector financing.”

Even before the coronavirus pandemic hit, the Middle East’s financial-services industry was witnessing a wave of consolidation as banks sought ways to improve competitiveness and boost capital amid slowing economic growth. Some of the biggest lenders in the United Arab Emirates have combined their operations.

Abandoned plans
In Saudi Arabia, there are almost 30 local and international lenders serving a population of more than 30 million people. The potential deal comes more than half a year after NCB abandoned plans to merge with Riyad Bank, a deal that would have created a bank with about $200bn of assets.

HSBC Holdings’ local affiliate Saudi British Bank completed its acquisition of Alawwal Bank, which was part-owned by Royal Bank of Scotland Group, in June last year. The Public Investment Fund, the kingdom’s sovereign wealth fund, has been weighing which other institutions could be merged to increase scale and competitiveness in the banking sector, Bloomberg News has reported.

The PIF, chaired by Crown Prince Mohammed bin Salman, is the largest shareholder in both NCB and Samba, according to data compiled by Bloomberg. It owns about 44 per cent of NCB and 23 per cent of Samba, the data show.

Two other government funds also own stakes in Samba. The General Retirement Organization has an 11.5 per cent interest and the General Organization for Social Insurance holds 7.1 per cent.

Deal bounce
An NCB-Samba deal would be a boost for the Crown Prince’s plan to diversify the Saudi economy away from oil by building up local champions in different industries.

It also adds to a recent string of large transactions that are helping to lift deal-making in the Middle East amid the global slump in mergers and acquisitions brought on by the coronavirus pandemic.

Abu Dhabi sold a $10.1bn stake in its natural-gas pipelines to a consortium of international investors on Tuesday, in the biggest infrastructure acquisition so far this year. The Gulf sultanate of Oman has also emerged as a surprise hot bed of deals.

NCB is being advised by JPMorgan Chase & Co. and Samba is working with Morgan Stanley.

The deal could mark a second high-profile banking merger in Europe, the Middle East and Africa after Intesa Sanpaolo SpA’s bid for Italian rival Unione di Banche Italiane SpA. Lenders are pursuing domestic consolidation to gain scale and cut expenses to offset regulatory costs and low interest rates, raising hopes among advisers for further takeovers.