FGB outlook upgraded to ‘positive’ after merger announcement with NBAD

FGB and NBAD said that their boards unanimously voted to recommend to their shareholders a merger. Nikhil Monteiro / Reuters

Moody’s Investors Service on Monday upgraded its outlook of FGB to positive from stable after the lender and National Bank of Abu Dhabi said they planned to merge, creating the biggest bank by assets in the Middle East.

The rating agency also affirmed the deposit ratings of both NBAD and FGB at Aa3 and A2, respectively. But it said that it was keeping NBAD's long-term ratings outlook negative, in line with the negative outlook assigned to the Government of Abu Dhabi amid the biggest crash in oil prices since the financial crisis of 2008.

Moody's said it kept NBAD's rating unchanged as the Arabian Gulf suffers from an economic slowdown because the merger will boost the bank's profitability and add more diversification when FGB's bigger retail book is combined with that of NBAD's.

“The addition of FGB’s larger domestic retail business will complement both NBAD’s international business and its well-established domestic wholesale franchise,” wrote Akin Majekodunmi, a senior analyst at Moody’s.

“As such, we expect that the combination will create the largest bank in the Gulf, which will support organic growth opportunities and moderate NBAD’s very high borrower concentrations.”

NBAD and FGB said that their boards unanimously voted to recommend to their shareholders a merger. The banks are proposing that the deal be done through a share swap in which FGB shareholders will receive 1.254 NBAD shares for each FGB share.

Under the proposed terms, FGB shareholders would own 52 per cent of the combined bank and NBAD shareholders the balance. It would leave the Government of Abu Dhabi and related entities with a 37 per cent interest in the bank. Shares of FGB would be delisted and the bank would be called National Bank of Abu Dhabi.

“The change of outlook to positive on FGB’s long-term ratings is driven by Moody’s view that the merger will be beneficial for FGB’s depositors and senior creditors, as they will be transferred to NBAD, a fundamentally stronger entity,” said Mr Majekodunmi.

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