Saudi British Bank, Alawwal boards approve $5bn merger

Saudi British Bank (SABB) and Alawwal said on Thursday their boards had approved a merger agreement that would create the kingdom’s third largest lender.

The $5bn deal, which was first announced in May, is the first major banking tie-up in Saudi Arabia for 20 years.

Read: Saudi’s Alawwal and SABB to merge creating $77bn bank

Under the terms, each Alawwal bank share is valued at SAR16.26 ($4.34) and Alawwal’s existing issued ordinary share capital at around SAR18.6bn, SABB said.

When the merger, which is still subject to shareholder and regulatory approval, is completed SABB’s existing shareholders will own 73 per cent of the combined entity and Alawwal’s 27 per cent.

“The combination of SABB and Alawwal bank will create a powerful banking franchise ready to fuel growth in the Kingdom,” said SABB chairman Khaled Suleiman Olayan.

“As Vision 2030 transforms Saudi Arabia, our own transformation will ensure our customers capture the opportunities of a more diverse, accessible and investible Saudi economy.”

The banks said the combined entity would be a leader in corporate banking, foreign exchange, cash management and trade finance.

They added that no “involuntary staff redundancies” are expected as a resulted of the merger.

Alawwal said the combined bank would have assets of SAR268bn ($71bn) as of the end of June, a market capitalisaiton of SAR64.6bn ($17.2bn) and loan to deposit ratio of 86.6 per cent.

SABB managing director David Dew will lead the combined group and Lubna Sulaiman Olayan has been named chair person. She will become the first Saudi woman to chair a Saudi listed company.

If the deal goes ahead, the combined bank would pay dividends bi-annually,

Alawwal said it was expected to be accretive to earnings per share for shareholders of both lenders.

The merger is expected to complete during the first half of next year. Until then, both both banks will remain independent and continue to operate as normal.

SABB is 40 per cent owned by HSBC Holdings and Alawwal is 40 per cent owned by a consortium that includes Royal Bank of Scotland (RBS).

Reuters reported that HSBC would own 29.2 per cent of the combined entity, Olayan Saudi Investment 18.2 per cent, the RBS consortium 10.8 per cent stake and the kingdom’s General Organisation for Social Insurance 9.9 per cent.

The RBS consortium, which has been trying to sell its Alawwal stake, would have a six-month lockup period, a source told the newswire.