Dubai Islamic Bank paid AED374.7m ($102m) to buy a controlling stake in Tamweel as the UAE’s biggest Islamic lender sought to boost mortgage financing in Dubai.
Dubai Islamic paid AED318.6m ($86.7m) in cash and AED56.1m ($15.2m) in treasury shares for the stake, according to the bank’s annual report distributed on March 31.
The lender in September raised its share in Tamweel to 58.3 percent from 21 percent, without disclosing the value of the transaction.
The deal implies a payment of AED1for each Tamweel share, according to Bloomberg calculations. Tamweel’s shares last traded at AED0.99 on November 20, 2008, when they were suspended pending a reorganisation. They had a book value of AED2.23 at the end of December, Tamweel’s results show.
“I was anticipating a payment of AED0.7 a share, so the acquisition is certainly more expensive than I had expected,” Raj Madha, a Dubai-based analyst at Rasmala Investment Bank Ltd, said in a phone interview on Sunday. “What is more interesting about the transaction though is the funding guarantees that Tamweel received which will help its longevity.”
Tamweel and Amlak Finance, another Dubai-based Islamic mortgage company, halted lending after the global credit crisis blocked their access to funds. The UAE federal government set up a committee in 2008 to study the revival of the two companies, which had relied on market borrowings to fund tUAE bankingheir mortgages. Tamweel began lending again from November 1.
Dubai Islamic Bank also revalued each Tamweel share to AED2.7 after a valuation of the company, according to the report. As a result, the bank booked a fair value gain of AED637m ($173.3m) from the acquisition in 2010.
“The gain has no real impact on my valuation; it doesn’t add to Dubai Islamic Bank’s cash flows, doesn’t affect its ability to pay dividend and doesn’t add to regulatory capital,” Madha said.
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