18/06/2020 10:09 AST

Consolidation in the Omani banking sector is a crucial need of the hour so that the sector could grow and stay competitive. Yet, we have not witnessed much progress to date on a wider scale. Despite challenging business and economic conditions, when we normally experience difficulties in completing large merger transactions, it is encouraging to see that the proposed merger between Oman Arab Bank (OAB) and Alizz Islamic Bank (Alizz) has been progressing remarkably well.

To find out what are the key enablers for this important merger and to discuss wide ranging issues, we caught up with Mr. Khalid Al Zubair, Chairman of OMINVEST Group (the majority shareholder of OAB).

In particular, we sought the Chairman’s views on the progress being made on the proposed merger; planned structure of the merged Bank and its future prospects; implications for the Omani banking sector and the broader economy, and the potential value creation for all the stakeholders. Here are excerpts of our conversation:

Mr. Chairman – we welcome you to the discussion. Please share your thoughts on the key factors that have contributed to the merger transaction’s successful progression.

For such a strategic transaction – critical to the health of Omani banking sector and our economy – the vision, commitment and crucial support for the transaction have emanated from the leadership of the Key Stakeholders and our esteemed Regulatory Institutions.

On behalf of OMINVEST’s Board, I would like to state that we cannot thank enough the leadership at the CBO and the CMA – not only did they give invaluable advice but also provided exceptional support. I must add that our Regulators’ approach has been admirably pragmatic given the extremely difficult business and economic conditions we all are facing. Simply put – their thought process and actions have been ahead of the curve.

We sincerely appreciate the support and commitment of Arab Bank plc, our long-standing strategic partner in OAB. Likewise, the Chairmen of OAB and Alizz, their Boards and the Top Management have been extremely thoughtful and proactive in seizing such an opportunity to preserve and create more value for their shareholders, customers, and employees. We are grateful to them all for extending gracious cooperation and demonstrating a true spirit of partnership.

Thank you Mr. Chairman for your insights. Can you please also elaborate on the future structure of the Merged Bank and when you expect the Merger to be concluded?

After careful thought and discussions amongst with the leaderships of OAB, Alizz and our esteemed Regulators, we all have agreed that after the Merger, OAB will become the parent entity and transform into an SAOG as a public listed entity in MSM, while, Alizz will become a wholly owned Islamic subsidiary of OAB and transform into an SAOC.

Here, I would like to highlight that as per the agreement between the key shareholders and support and advice of the Regulators, OAB will inject capital to restore the capital-base of Alizz (the proposed Islamic Subsidiary) and together transfer OAB’s Islamic window (Al Yusr) to Alizz to strengthen and scale-up its Islamic Banking business. In terms of the merger’s timeline, we believe that subject to the shareholders’ and all the regulatory approvals, the merger is expected to be finalized by the end of June 2020.

We just saw a Market Disclosure from OMINVEST regarding the sale of its stake in OAB to Arab Bank plc – kindly explain the motives behind sale of the stake, its impact on the future shareholding structure of the Merged Bank and role of the major shareholders?
I would like to emphasize that it is important for key stakeholders and the general investors to fully understand the rationale behind the sale of OMINVEST’s stake in OAB to Arab Bank plc. In order to facilitate the merger transaction and to be respectful of our long-standing partner’s strategic interests, OMINVEST decided to dilute its share in OAB to facilitate for Arab Bank plc to maintain its 49% stake in OAB. This will allow Arab Bank plc to gain control, contribute more capital, transfer technology and add value to the business. OMINVEST will sell 11.76% stake in OAB to Arab Bank plc at a valuation of 1.3x the Book Value as of 31st March 2020. We believe that such a control premium for a significant stake is justified given OAB’s growth prospects ahead.

We are cognizant that the sale of the stake will also cause immediate loss of sizeable earnings for OMINVEST that it used to accrue from OAB. However, we are confident that OMINVEST will be able to deploy the proceeds from the sale to other high-quality investments to fill the earnings gap and further diversify our portfolio.

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