Bank Dhofar makes offer to acquire 100% of competitor Ahli Bank

The lender withdraws its merger offer and intends to pursue the takeover deal

A Bank Dhofar and Ahli Bank deal will create a financial institution with nearly $19 billion in assets. Bloomberg

Oman’s second-biggest lender by market value, Bank Dhofar, has withdrawn its merger offer for Ahli Bank and put a new deal on the table to acquire 100 per cent of its rival.

The lender is offering the same terms for the complete takeover of Ahli Bank that it laid out in its revised merger offer submitted last week, Bank Dhofar said in a statement to the Muscat Securities Exchange, where its shares are traded.

“Having considered its options, the board of directors of Dhofar bank … resolved to make an offer to acquire 100 per cent of issued share capital … and to therefore withdraw our merger offer,” the lender said.

On May 17, Bank Dhofar submitted a non-binding revised offer for its merger with Ahli Bank, just a day after Oman International Development and Investment Company announced its intention to bid for the lender.

Bank Dhofar, which manages more than 4.4 billion Omani rials ($11.43 billion) in total assets, first made a merger offer last month.

However, Ahli Bank’s board of directors rejected the offer that would have created an entity with nearly $19 billion in assets.

Bank Dhofar’s takeover offer provides all Ahli Bank shareholders the option of receiving 25 per cent of their shares’ value in cash and the remaining in newly issued Bank Dhofar shares.

“Bank Dhofar envisages to fund the cash component of the offer from its existing liquidity and capital resources as well as capital contributions from Bank Dhofar’s shareholders, if and as required,” the bank said.

The financial terms of offer sets the swap ratio at 1.2910 Bank Dhofar shares per Ahli Bank share, valuing Ahli shares at 0.200 rials based on the Bank Dhofar’s closing prices of 0.155 on April 9.

The offer sets 0.200 rials for each share as the cash component of the deal.

The deal offers a “premium of 15 per cent to ABO’s [Ahli Bank] share prices of 0.174 rials as at April 9,” which is an “implied price-to-Q1 book value multiple of 1.3 times”, Bank Dhofar said.

“We believe that combination of Bank Dhofar and ABO is a compelling opportunity for ABO shareholders.”

The deal will create a “leading domestically focused wholly-owned Omani bank” which will have a competitive edge and will be well place to serve the growing market, Bank Dhofar said.

Ahli Bank has yet to respond to the new offer from Bank Dhofar. However, for the deal to succeed, the acquirer will have to fend off a competitive bid from Ominvest.

Muscat-based Ominvest last week submitted a letter of intent to acquire Ahli Bank’s entire issued capital and subsequently merge the bank with Oman Arab Bank.

“The board of directors of the bank are considering the letter of intent and will make the relevant disclosures in due course in accordance with the applicable laws and regulations,” Ahli Bank said in a statement at the time.

Ominvest, whose total assets stood at $3.4 billion as of the end of 2022, reported an almost 70 per cent annual increase in its revenue to 336.8 million rials last year while net profit attributable to shareholders surged by 85.2 per cent to 50 million rials.

Bank Dhofar also reported strong results last year with its net profit climbing 36 per cent to 34.1 million rials on the back of higher income from net interest and Islamic financing.

Set up in 2007, Ahli Bank is partly owned by Bahrain's Ahli Bank and operates 23 branches in Oman. It offers retail, commercial and investment banking solutions.

The bank's 2022 net profit jumped nearly 20 per cent to 33 million rials on the back of lower impairment losses and higher net interest income.

It had total assets worth three billion rials at the end of last year.

The takeover of Ahli Bank, either by Bank Dhofar or Ominvest, will continue the consolidation in the Omani and the wider GCC banking market.

This year, HSBC Bank Oman received approval from the Central Bank of Oman for its proposed merger with Sohar International Bank, which is expected to close in the second half of 2023.

As part of the deal, first announced in November last year, all the assets and liabilities of HSBC Oman will be transferred to Sohar International.

M&A activity elsewhere in the GCC has risen significantly after the three-year oil price slump that began in the middle of 2014 and has led to the creation of some of the strongest financial institutions in the market.

First Abu Dhabi Bank, the UAE’s largest lender, was formed through the merger of National Bank of Abu Dhabi and First Gulf Bank in 2017.

Other big deals in the banking sector include the merger of Saudi Arabia’s biggest retail lender National Commercial Bank and smaller rival Samba Financial Group to create the kingdom’s biggest bank, Saudi National Bank.

In March, Moody’s Investors Service said the consolidation among financial institutions across the GCC will continue amid the push to create lenders with greater scale as banks look to boost revenue, achieve cost synergies and support the diversification of Gulf economies away from oil.