Boards of Kuwait Finance House and Ahli United Bank Agree Terms of Possible Merger

The boards of Kuwait Finance House (KFH) and Ahli United Bank (AUB) have agreed on a share swap ratio, marking a significant milestone in KFH’s bid to acquire its Bahraini counterpart and form a combined Islamic banking giant with assets worth $96.7 billion (Dh354.7bn). This move is poised to reshape the Islamic finance landscape across the Gulf.

AUB announced that its board has approved the final exchange ratio of one KFH share for every 2.325581 AUB shares, as confirmed in a statement to Boursa Kuwait, where AUB’s shares are listed. However, AUB clarified that while the exchange ratio is approved, it does not yet indicate an official acquisition offer from KFH.

This approval follows KFH’s statement last Thursday, where it agreed to the terms of the deal after conducting due diligence on AUB’s financials. The merger is still subject to final approval from the shareholders, central banks, and regulatory authorities in Kuwait and Bahrain. KFH has not disclosed when the formal offer will be made.

The approved ratio remains consistent with the one proposed in January when both lenders enlisted HSBC and Credit Suisse as financial and legal advisers to conduct a comprehensive due diligence review. Analysts from EFG Hermes, including Mohamad Al Hajj and Elena Sanchez-Cabezudo, noted in a research report that AUB’s shares are currently trading at a 7% discount to the share swap ratio’s implied price.

“This merger, assuming completion before May 2020, will increase KFH’s weight within the MSCI Emerging Market Index by 8 basis points and is expected to generate flows of $370 million in May 2020,” EFG Hermes analysts added.

This acquisition marks KFH’s renewed attempt to acquire AUB after previous negotiations were halted due to valuation differences. The deal reflects a growing trend in the Gulf Cooperation Council (GCC) banking sector, where lenders are seeking mergers to achieve scale and navigate challenging economic conditions driven by a weakening global economy.

Several high-profile mergers have recently taken place in the Gulf, including the three-way merger between Abu Dhabi Commercial Bank, Union National Bank, and Al Hilal Bank in the UAE. Additionally, Dubai Islamic Bank, the UAE’s largest Sharia-compliant lender, is in the process of acquiring Noor Bank, while National Commercial Bank in Saudi Arabia is pursuing a merger with its competitor Riyad Bank.

In Bahrain, the National Bank of Bahrain, a majority government-owned entity, is in discussions with Bahrain Islamic Bank regarding a potential acquisition as part of its strategy to expand its footprint in the Islamic finance market.

KFH’s acquisition of AUB is expected to further consolidate the Islamic banking sector in the region, positioning the newly combined entity as a major player in the global Islamic finance industry.