MANAMA: Bahrain’s largest lender Ahli United Bank (AUB) has completed due diligence of Kuwait Finance House (KFH) as the Kuwaiti lender bids to take over the conventional bank in the first major cross-border bank deal in the Gulf region.
In a bourse statement yesterday, AUB said it has received reports from specialist advisers appointed to complete the due diligence on Sharia-compliant KFH, which were submitted to the AUB board for review and evaluation, without specifying when the result of the board review is expected.
KFH said on January 26 this year that the purchase of AUB is expected to boost consolidated profit by more than 90 per cent from the level in 2018.
The two banks announced the deal on January 24, which will create the largest banking entity in Kuwait with assets of about $94 billion, and the sixth largest bank in the Gulf region.
The banks, which have been in merger talks since mid-2018, agreed on a preliminary exchange ratio of one KFH share for every 2.326 AUB shares.
They have not revealed the share prices for the exchange ratio.
Bahrain-based investment bank Sico’s vice-president for financial institutions research Chiro Ghosh told the GDN that based on KFH’s current share price of KD0.75, the valuation of AUB would be KD0.322 in Kuwait and $1.06 in Bahrain.
“The current market capitalisation of AUB is $8.16bn. The premium on AUB’s current share price would be 13 per cent. Based on the price there is a price-match between KFH’s share price and value of AUB’s share price in terms of KFH share price post the merger,” he added.
“This would lead to potentially three scenarios, AUB shares rally by 13pc, KFH shares decline by 13pc or a more likely scenario of a combination of both with the shares meeting somewhere in between.”
Providing analysis of the two companies’ price-to-earnings (PE) ratio, Mr Ghosh said the trailing PE of AUB is 12x, while that of KFH is 22x.
The PE ratio helps investors analyse how much they should pay for a stock based on its current earnings.
Kuwait’s Public Institution for Social Security owns 18.7pc of AUB, while the Kuwait Investment Authority holds a 24.1pc stake in KFH.
KFH chairman Hamad Abdulmohsen Al Marzouq had said the bank’s lending capacity would increase by 61pc after the acquisition, allowing it to tap new markets such as Egypt and the UK.
avinash@gdn.com.bh
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