Dubai Financial takes 15% Bank Muscat stake

Bank Muscat, Oman's biggest lender by market value, has agreed to sell a 15 %stake to Dubai Financial for $619 million, making the Dubai government-owned firm the bank's second-biggest shareholder.

Bank Muscat will issue 161.57 million new shares at 1.475 rials ($3.83) per share through a private share sale with Dubai Financial, the bank said in a statement on Saturday.

Shares of Bank Muscat last closed on Thursday at 1.460 rials.

The transaction, which awaits regulatory and shareholder approvals, would help the lender expand, Bank Muscat Chairman AbdulMalik al-Khalili said in a statement.

"We intend to use these funds to support the overall asset growth and expansion plans of the bank both in the domestic market and overseas," Khalili said.

Across the Gulf, banks, buoyed by the economic windfall of a tripling in oil prices since 2002, are expanding and making acquisitions as competition intensifies in their home markets.

Dubai Financial, whose parent Dubai Holding is owned by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum, said in July it had agreed to buy around 37 %of Bahrain's TAIB Bank and was looking to raise its stake to 60 percent.

The company also paid about 403 million euros ($551.9 million) for a 31.5 % stake in Greek Marafin Financial Group in March.

Once approved, Dubai Financial would be Bank Muscat's second-biggest shareholder behind Royal Court Affairs, according to Reuters calculations based on data on the lender's Web site.

"This comes at the right time as both the Dubai and Oman economies diversify rapidly and gain momentum in terms of growth and opportunities," Dubai Holding Executive Chairman Mohammed al-Gergawi said in the statement.

Oman's $35.3 billion economy may expand by 6.5 %this year, the second-fastest pace in at least six years, according to HSBC Holdings Plc.

Dubai Financial, whose portfolio also includes Thomas Cook India and a 68 % stake in Dubai Bank, also bought 4.24 percent of Oman National Investment Corp. Holding in April.

The Dubai firm would nominate two directors to the Omani lender's board, Bank Muscat said.

FINANCING EXPANSION

Cross-border Gulf bank acquisitions have taken off since the government of Dubai said in March it would combine Emirates Bank International and National Bank of Dubai (NBD) to create the biggest Gulf lender by assets to cope with growing demand for credit.

Commercial Bank of Qatar said in July it was in talks to buy a minority stake in UAE-based United Arab Bank, while talks by another Qatari lender to acquire Bahrain's Ahli United Bank for $6.1 billion fell apart last week.

Bank Muscat, which posted its second straight record profit in the second quarter, wants to increase foreign operations' share of profit to 25 percent in five years from 7 percent in 2006, Chief Executive AbdulRazak Ali Issa said in April.

The Dubai Financial deal would increase Bank Muscat's capital adequacy ratio, the ratio of a bank's capital to its risk-weighted credit exposure, to 18.87 percent from 11.4 percent, Bank Muscat's Khalili said.

Omani central bank rules require that lenders' capital adequacy ratio be no less than 10 percent.

The bank was considering selling shares to existing stockholders or selling Global Depositary Receipts to boost capital, Bank Muscat head of finance Ganesh Thangavel told Reuters on July 21.

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