KUWAIT: Kuwait Finance House (Baitak) held its ordinary and extraordinary General Assembly meeting on Monday and approved the deal to acquire Ahli United Bank – Bahrain with the attendance of 83.189 percent of shareholders. All items on the agenda of the ordinary General Assembly were approved during the meeting, which includes the approval of the Sharia Supervisory Board report with regards to the proposal to acquire Ahli United Bank (B.S.C), and its attachments, the approval of the board of directors to approve the exchange rate which is one share from KFH for 2.695 shares of Ahli United Bank (B.S.C), and approve the evaluation of real assets that was done by one of the evaluators accredited by the Capital Markets Authority to increase the issued capital of KFH.
The General Assembly approved the renewal of the ordinary general assembly that was issued in its meeting on January 20, 2020 regarding the listing of KFH on the stock exchange in the Kingdom of Bahrain. All items on the extraordinary General Assembly Agenda, were also approved, most important of which is the recommendation of the Board of Directors to increase the issued and paid up capital of KFH by issuing maximum number of shares at 4,200,000,000 (four thousand and two hundred million) shares, with the national value of the shares to use it for executing the acquisition.
Baitak Chairman of the Board Hamad Abdul Mohsen Al-Marzouq
Baitak Chairman of the Board Hamad Abdul Mohsen Al-Marzouq said the KFH acquisition of Ahli United Bank – Bahrain represents a historic milestone at a time when Kuwaiti banking sector is moving forward in a highly competitive industry both regionally and internationally. At the same time, opportunities for small banks to compete with bigger banking entities over the years have diminished.
Various implications of the deal on the bank, its shareholders and customers were also discussed at the meeting. The assembly also discussed the possible impact of the deal on the banking system and the national economy and expected quantitative and qualitative benefits from the takeover as well as the financial safety as far as capital adequacy, assets quality, profitability, liquidity, etc are concerned.
He said the existence of a major banking entity that is compliant with Sharia rules has become something more than necessary especially that Islamic banks are only six decades old while the traditional banks are six centuries old. So, the Islamic banks will be able to achieve higher growth rates in the future in case they adopt expansionist policies, adding that through (Baitak – Ahli United Bank) deal, the unified entity will be able to absorb shocks and confront risks. Besides, the entity will strengthen the ranking of the Kuwait banking sector at the GCC level as Kuwait banks are currently in fourth place among Gulf banks as far as asset sizes, according to recent data.
Al-Marzouq said despite the leadership of Kuwait banks, the Gulf banking sector witnessed 11 takeovers and mergers over the last ten years resulting in the formation of larger entities reducing the ability to compete in the local banking sector.
Facts confirm that the deal is in favor of all concerned parties, especially that the supervisory authorities made extensive studies to find out the expected effects on the banking sector and local economy. This is in addition to the studies that were conducted for some major shareholders by international organizations of experts and professionals that confirmed the feasibility of the process and its importance.
As for the time period for the procedures and approvals the acquisition required, he said, the idea of this project began six years ago and was discussed by all shareholding entities as well as supervisory authorities in more than one country. More than 14 consultants participated in the study of this deal, most of whom are international as well as local consultants. For example, Kuwait Investment Authority (KIA) appointed two international consulting firms Merrill Lynch and Morgan Stanley to evaluate the effects of the takeover on their share in Baitak. The results of their studies were positive and in favor of the takeover. Central Bank of Kuwait appointed McKinsey to evaluate all implications resulting from the takeover deal on the banking sector in particular and on the local economy in general, and the results were also positive.
At Baitak level, it appointed several international and local advisors such as Goldman Sachs, Al-Shall and others and the results of all these studies were positive. The consultants gave detailed reports on the financial advantages of the acquisition for “Baitak” and its shareholders, including government entities.
High financing capacity
To go along with the programs and projects of partnership between the public and private sectors, Kuwait needs banking entities with large capital basis that are able to provide major finances required for the national development projects. And this is what this acquisition achieves as the capital base of the bank after the takeover will be more than $10 billion. This will lead to the reduction of depending on international banks for financing, assets management, consultations and other processes for Kuwait banks, especially if they were big entities with huge capitals so the contribution of local banks in the economy will increase, serve the goals of diversifying income sources and economy and also create opportunities for national labor.
Advantages of acquisition
Advantages of mergers and acquisitions in the banking sector are manifold in light of the accelerating economic variables that occur in the market. The need for enhanced competence and quality services at a lesser cost have become essential and the change of customer needs and advancement of technology now control all facets of economy.
The economic and financial advantages of the acquisition are countless and some of these were discussed during the meeting.
1) Kuwait has a declared goal for the development project which is to elevate its competitiveness as a financial hub and in achieving that goal, the country needs bigger banks. The takeover is a step in this direction and it supports Kuwait’s status as a commercial center in addition to the fact that it increases the opportunities for its development of Islamic banking, improve and reduce cost of services.
2) Liquidity management in Kuwait needs the borrowing market to finance its development project. And its needs will be huge and the bigger its banking sector the more its ability to meet these requirements.
- The merged entity combines two cultures for two successful banks, even if it was measured by the historic rise of the business size, or the rise of profitability level. It is for sure that the merged entity will benefit from the integration of their services to strengthen and unify the good among them.
4) The acquisition creates a strong banking entity with a capital base of over $10 billion and assets that are equal to $121 billion. This capital base will strengthen the bank’s ability to finance the infrastructure projects and major oil projects through local banks and reducing dependence on foreign banks.
- The new banking entity will have distinguished geographic variation as it will operate in nearly 12 regional and international countries.
- This takeover will raise the net “Baitak” profits in foreign currency from 19.8 percent to 39.6 percent which will contribute to increasing Kuwait’s returns in foreign currency.
- The acquisition will increase the bank’s activity and its ability to create new job opportunities for Kuwaiti youth inside and outside Kuwait through the bank’s main premises in Kuwait and its foreign branches in 12 countries.
- This acquisition will increase the size of Kuwaiti banks that could compete with other Gulf banks in terms of size and competitiveness. Notably, there were 11 acquisitions and mergers that took place mainly in Saudi Arabia, Qatar and the UAE while the number of these operations in Kuwait was limited to just one which was the takeover Boubyan Bank by the National Bank of Kuwait.
- The acquisition will benefit all shareholders without any exception, and public funds will be bigger. The international consultant Goldman Sachs estimated that the returns on the government shares, that is public fund, will be around $5.2 billion as a result of the increase in the expected capital value and around $110 million in annual financial returns.