Emirates NBD will now pay $2.75bn for Sberbank's wholly-owned Turkish unit
Dubai’s biggest bank will save about $400 million in a deal to buy Turkey’s Denizbank after the lira slumped and economic growth stalled since the agreement was announced 10 months ago. Emirates NBD’s shares jumped to the highest level in 11 years.
Emirates NBD will pay 15.48 billion lira ($2.8 billion) for Sberbank's wholly-owned Turkish unit, according to a statement. That compares with 14.6 billion lira it agreed on for Denizbank on May 22, the equivalent of about $3.2 billion at the time.
The revised price is at 0.998 times book value, slightly lower than the 1.05 to 1.06 times book value in the original deal, Jaap Meijer, the head of research at investment bank Arqaam Capital Ltd., wrote in a note to clients.
The United Arab Emirates’ second-biggest bank is taking the reins at Istanbul-based Denizbank as President Recep Tayyip Erdogan leans on lenders to lower interest rates and reverse a decline in credit to pull the Middle East’s biggest economy out of its first recession in a decade.
It also comes as financial institutions face a rising pile of bad debt and restructuring demands from companies struggling to repay loans denominated in foreign currencies.
The transaction is both Turkey’s largest M&A deal since 2012 and the Dubai bank’s biggest acquisition. The deal is expected to close in the second quarter.
Emirates NBD jumped as much as 9.3 percent in Dubai to trade at the highest level since February 2008. The shares were up 3.3 percent at 11:11 am in Dubai, extending gains this year to 25 percent. That compares with a 9 percent advance for Dubai’s benchmark index.
The shares have also been buoyed by the bank receiving approval to raise the foreign ownership limit to 20 percent from 5 percent in March 2018. In addition, Emirates NBD got approval to increase share capital by as much as 7.35 billion dirhams ($2 billion) through a rights offering at a discount.
“Executing this deal will open up the way for a lower-than-expected rights-issue price and ultimately increasing the foreign ownership limit in the bank,” said Ali El Adou, the head of asset management at Daman Investments in Dubai.
The lira lost 17 percent against the dollar since the deal was signed, hitting a record low in August, amid tensions with the US and increasing signs the economy was fraying. The currency’s crash has fueled inflation of almost 20 percent that is cutting into disposable income.
The deteriorating climate is likely to undermine banks’ asset quality, raising the risk that the public sector will be called on to support parts of the domestic corporate and banking system, S&P Global Ratings said last month.
Gulf-based lenders are attracted to Turkey with its young and under-banked population of more than 80 million people - dynamics they can’t find domestically, where expansion opportunities are limited.
"Even though the deal will destroy some shareholders’ value, reflecting Emirates NBD’s desire to enter a new market rather than showing M&A discipline, the unlocking of value through the foreign ownership limit should be a multiple of that," Arqaam’s Meijer wrote.
Emirates NBD had $136 billion in assets at the end of December, while Denizbank had $37 billion, according to data compiled by Bloomberg.
Denizbank rose 2.9 percent at the open, although only 0.15 percent of the shares are available for trading. Denizbank is Turkey’s ninth-largest bank by assets as of the end of September, according to banking association data. Sberbank gained 1.4 percent.