(Bloomberg) — Dubai Islamic Bank PJSC is proceeding with plans to acquire a smaller local rival as the United Arab Emirates’ biggest Islamic lender joins a regional wave of mergers and acquisitions. The shares rose.
The state-controlled bank’s board recommended calling a shareholder meeting to consider buying 100% of Noor Bank PJSC, it said in a statement on Monday. The deal would create a lender with about 278 billion dirhams ($76 billion) in assets.
The deal is “positive for the sector and Dubai Islamic Bank,” Aarthi Chandrasekaran, a money manager at investment bank Shuaa Capital PSC, said in an email. Dubai Islamic Bank may pay around 0.8 to 0.9 times book value for Noor Bank shares and the deal may lead to savings of at least 20% for Noor Bank, she said.
The Middle East’s financial-services industry is going through a wave of consolidation as banks seek to improve competitiveness and boost capital amid slowing economic growth. Abu Dhabi has merged three of its banks after combining two of its biggest lenders in 2017. Banks in Saudi Arabia, Kuwait and Bahrain are also holding talks to combine.
The acquisition will result in cost efficiencies and contribute to profitability, as well as allowing Dubai Islamic Bank to offer competitively priced products and services across a more diversified portfolio, the lender said in a separate statement. It’s also expected to drive innovation and accelerate the group’s digitization program.
HSBC Holdings is advising Dubai Islamic Bank on the deal and Noor Bank is working with Barclays Plc, people with knowledge of the matter said last month.
Dubai Islamic Bank shares rose as much as 3%, the most in almost a month, when they resumed trading. They were up 1.8% at 5.13 dirhams at 11:58 a.m. in Dubai, while the benchmark index was up 1.1%.
Investment Corp. of Dubai, the emirate’s main state-owned holding company, is the largest shareholder in Dubai Islamic Bank with a 28% stake. It’s also one of the biggest investors in the privately-held Noor Bank, which was set up in 2008.
The date and agenda for the general shareholders’ meeting, including the terms and details of the acquisition, will be announced after it has been approved by regulatory authorities, Dubai Islamic Bank said in the statement. Noor Bank’s operations will be integrated and consolidated within Dubai Islamic Bank after the acquisition, it said.