Shares in Emirates Bank International (EBI) and National Bank of Dubai (NBD) were the biggest gainers on the Dubai Financial Market today, after trading in the companies was resumed following a suspension due to their shock merger plans.
At market close, shares in EBI stood up 5% at AED13.65 while NBD was up by 4.74% at AED11.05. Trading in the latter was the most active of the two, with AED15,458,025 of shares changing hands – making it today’s sixth most active stock on the exchange by value.
Trading was suspended yesterday because of the news that the banks are to merge to form the largest Gulf Arab bank by assets. It resumed today after the two banks issued a statement on the merger plan.
The two banks have agreed to undertake financial and legal due diligence, get an independent transaction valuation, complete capital structuring and seek regulatory approvals as part of the merger process, they said in a statement on the stock market website.
“We will keep you updated on the progress,” said the statement from the two lenders, who had given no public indication that a merger was in the works after a first attempt in 1999 collapsed.
Observers praised the decision to suspend the stocks after the news was announced.
“The suspension was a smart move because there would have been euphoria otherwise,” said Mohammed Yasin, managing director of Emirates Securities.
The two banks will merge at the behest of Dubai’s ruler to form a lender large enough to meet the demands of a rapidly growing economy, Emirates Bank said on Tuesday.
The news raised expectations that more mergers would follow in a region where economic growth has surged on a tripling of oil prices in the five years to July, driving demand for bank credit.
“I think it will affect the banking sector in general. There will be a lot of consolidation,” said Yasin.
National Bank, the smaller of the two, was more cautious than Emirates Bank in its first comments on the plan on Wednesday, saying any deal would have to be approved by its shareholders.
The government of Dubai, part of the United Arab Emirates federation, owns 76% of Emirates Bank and 14% of National Bank.
Majority shareholders of National Bank, Dubai’s fourth-largest by market value, would have little choice but to acquiesce to a deal blessed by the emirate’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, Standard & Poors’ credit analyst Anouar Hassoune said.
Standard and Poor’s raised its outlook on the ratings of both banks to positive from stable on Wednesday, saying the new entity, with $45 billion in assets, would have “strong financial performance, sound liquidity, and a well-diversified funding mix.”
Moody’s Investors Service has said that it will not change the ratings of the banks until more information about the proposed merger is available.
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