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First Abu Dhabi Bank submits a nonbinding offer for a majority stake in EFG Hermes
First Abu Dhabi Bank submits a non-binding offer for a majority stake in EFG Hermes
Non-binding offer for a minimum of 51% of the outstanding share capital of EFG Hermes, that is subject to due diligence and regulatory approvals from the relevant authorities in Egypt and the UAE. The potential transaction is in line with FAB’s long term strategic ambitions, and beneficial for both parties providing enhanced scale, specialisation and significant revenue synergies in investment banking
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First Abi Dhabi Bank Headquarters F irst Abu Dhabi Bank (FAB) announces that it has submitted a non-binding offer for a potential cash acquisition of a majority stake in Egyptian financial services institution EFG Hermes Holding S.A.E. (EFG Hermes).
The non-binding offer, for a minimum of 51% of the outstanding share capital of EFG Hermes, is subject to due diligence and regulatory approvals from the relevant authorities in Egypt and the UAE. Following the satisfactory outcome of the due diligence process, FAB intends to make a mandatory tender offer in accordance with applicable laws and regulations.
In its non-binding offer to the Board of Directors of EFG Hermes, FAB has indicated an all-cash offer price of EGP 19.00 per share. The offer values EFG Hermes at EGP 18.5 billion (USD 1.2 billion) and represents a 21% premium to EFG Hermes’ closing price of EGP 15.74 on 08 February 2022. The offer price also represents a premium of 32%, 40% and 48% respectively over the three-month, six-month and twelve-month volumeweighted average price.
FAB believes that the non-binding offer represents an attractive liquidity event and a compelling value proposition for EFG Hermes’ shareholders, reflecting the company’s robust fundamentals, and strong future growth prospects. This potential transaction would represent a significant milestone for FAB, in line with the bank’s long term strategic ambitions to become the reference institution for investment banking in the region. It provides enhanced scale, specialisation, growth levers and revenue synergies, strengthening FAB’s offering and regional presence. This potential transaction will build on EFG Hermes’ strong investment banking capabilities, track record and reputable brand.
Additional details with regards to the due diligence process or the potential transaction would be provided to the market in due course.
Aligning with the global markets
The UAE government is creating more investment opportunities in its non-oil private sector while implementing new structural reforms to boost its competitiveness
The UAE enjoyed a strong finish to 2021 and the Gulf state is primed for a strong economic rebound this year on higher oil prices and production as well as the recovery in tourism and domestic non-oil activity linked to the ongoing Expo 2020 Dubai. The oil-rich GCC state witnessed a gradual economic recovery last year driven by the authorities’ strong health response, continued supportive macroeconomic policies and structural reforms that are enhancing sustainable economic growth.
“A gradual recovery is expected in 2022,” the International Monetary Fund (IMF) said last September citing the UAE’s “strong” health response and supportive macroeconomic policies and rebound in tourism and domestic demand.
The UAE is weathering the negative trend in global markets and analysts remain optimistic about the country’s growth this year. The IMF estimated that the country’s real GDP will expand by 3% this year from the 2.2% that was projected in 2021 after a 6.1% contraction in 2020.
Despite the global and local uncertainty around the economic recovery, “the UAE’s strong reform momentum provides an upside risk to growth,” the IMF said. The government is leaving no stone unturned in its efforts to diversify the economy away from heavy dependence on oil revenues.
The UAE, which has been the Middle East region’s tourism and business hub for more than a decade and has been facing growing competition from its GCC neighbours, is creating more investment opportunities in its non-oil private while implementing new structural reforms to boost its competitiveness.
“The UAE’s institutions and governance strength have been demonstrated by the spearheading of reforms destined to improve the business environment, and the progress made on diversifying the economy and fiscal revenues away from the hydrocarbons sector,” said Moody’s.
Meanwhile, the country’s top banks are expected to register an increase in profits over the next 12 to 18 months, though lower than pre-pandemic levels, as they book lower loan-loss provisions while the economy gradually recovers from the impact of the coronavirus.
Financial matrix
Banking sector
UAE banks’ funding structure benefits from a strong core customer deposit base and limited reliance on external funding. The business environment for the UAE’s financial service sector is expected to remain solid as growth will continue to present business revenue and growth opportunities as the economy gradually re-emerges from the COVID-related contraction.
The Gulf state’s top five banks—First Abu Dhabi Bank (FAB), Emirates NBD, Abu Dhabi Commercial Bank (ADIB), Abu Dhabi Islamic Bank (ADIB) and Dubai Islamic Bank (DIB) —registered a combined annual net profit of $9.1 billion (AED 33.5 billion), thanks to the recovery in the country’s economic conditions.
Meanwhile, a mixture of changing consumer preferences, competition from fintech startups and an enabling regulatory environment is driving digital transformation in the UAE financial services sector as banks seek to bolster their digital capabilities.
The Central Bank of the United Arab Emirates (CBUAE) last month gave an in-principal approval to ADQbacked digital banking platform, Wio, to launch operations. The development comes months after the country’s first independent digital banking platform, YAP, started operations.
Banks in the UAE have in recent years launched their own digital banking offerings targeted at digitally-savvy and younger users including Liv. by Emirates NBD, Mashreq Neo by Mashreq Bank and ADIB’s Amwali. The banks are digitalising complex processes and endto-end customer journeys across the front, middle and back offices to meet the evolving needs and expectations of customers that include the quest for self-service, seamless, automated, and omnichannel experience – with the minimal waiting time.
The Gulf state’s lenders have been increasingly expanding their operations across the Middle East region to sustain growth. FAB submitted an offer to acquire a majority stake of “no less than 51%” in EFG Hermes Holding in February—a deal that is expected to be the Abu Dhabi-based lender’s second major transaction in Egypt after the acquisition of Bank Audi Egypt in April 2021.
Pulse of cryptos
The oil-rich country has also intensified its push to boost the use of blockchain in recent years as Dubai, the GCC region’s financial hub is vying with Singapore and Switzerland to become a global crypto hub.
The Dubai World Trade Centre (DWTC) is set to become a crypto zone and regulator for cryptocurrencies and other virtual assets as part of the
government’s broader strategy to create new economic sectors and promote financial inclusion. The free zone signed a cooperation deal that is aimed at developing virtual asset regulations in the city with cryptocurrency exchange Binance last December.
The regulator for Dubai’s state-owned financial free zone, Dubai Financial Services Authority (DFSA), also unveiled the first part of a regulatory framework for digital tokens in October 2021. The move by DFSA came months after Canadian bitcoin fund manager 3iQ listed its bitcoin exchange-traded fund “The Bitcoin Fund” on Nasdaq Dubai, becoming the region’s first indexed cryptocurrency digital assetbased fund in June 2021.
In January, the Abu Dhabi financial hub’s regulatory authority gave cryptocurrency exchange firm Rain an in-principle approval (IPA) for financial services permission. ADGM introduced its first comprehensive virtual assets framework in 2018.
Debt markets
The UAE’s federal government, which had not issued bonds before, raised $4 billion from its debt capital markets debut last October after orders for its three-tranche bond deal reached $22.5 billion. The debt is rated Aa2 by Moody’s—the third-highest investment grade and one step lower at AA- by Fitch Ratings.
The country’s cabinet approved its 2022-2026 federal budget of $78.96 billion in October 2021 and focused most of next year’s budget of $16 billion on spending on social benefits and development. The Gulf state said that 16% of the budget will go towards higher education, 6% to social affairs, 8.4% to the health sector and 3.8% to infrastructure and economic resources.
The Arab Gulf region has seen a surge of green or sustainable, debt sales as investor demand for eco-friendly deals balloons. Abu Dhabi-based Sweihan PV Power Company issued $700.8 million ‘mortising’ green bonds in January 2022 as the solar energy joint venture—which is 60% owned by TAQA seeks to save nine million metric tons of carbon dioxide from being emitted between 2020 and 2030. DIB, the UAE’s biggest Islamic bank, sold $750 million in five-year senior unsecured Sukuk last month after the notes drew more than $1.6 billion in orders.
Stock exchanges in the UAE, the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Markets, are introducing initiatives that include flexibility on the minimum stake size required for share sales and promising to reduce or forgo listing fees in a bid to encourage more domestic listings. The Gulf state’s stock markets are bracing for yet another year of recording initial public offerings (IPOs) and the listings to look out for in 2022 include Emirates Global Aluminium, Empower, and Dubai Electricity and Water Authority.
$78.96 billion
UAE 2022/26 budget
Source: UAE Federal Government
Kamco Invest in its GCC Equity Markets: 2021 report attributed ADX’s gains last year to a string of listing by several state-owned firms amid a climate of economic optimism. The UAE’s market regulator also approved the ADX’s regulatory framework for the listing of special-purpose acquisition companies (SPACs), as the country seeks to open the booming market to GCC investors.
Diversification drive
The UAE, which broke ranks with the rest of the GCC region and shift its weekend to Saturday and Sunday in January, has taken measures over the past years to make its economy more attractive to foreign investment and talent. The country is introducing several initiatives such as ‘Make it in the Emirates’ and ‘Operation300bn’ to spur investment as part of its push to drive growth in the non-oil sector.
Under the ‘Operation300bn’, the government seeks to enhance the industrial sector’s contribution to the UAE’s economic output, from the current $36 billion (AED 133 billion) to $82 billion (AED 300 billion) over the next 10 years.
Last September, the UAE said it would spend $6.5 billion (AED 24 billion) on a package of benefits and subsidies that are designed to reduce citizen unemployment by making private sector jobs more attractive. Just like its Arab Gulf neighbours, UAE has a large proportion of citizens working in state jobs that offer better pay and shorter hours.
Small and Medium Enterprises (SMEs) and startups represent a significant part of the UAE’s non-oil private sector and are one of the strongest drivers of economic development, innovation and employment. Following the establishment of the Ministry of State for Entrepreneurship and SMEs in July 2020, the Gulf state unveiled the Entrepreneurial Nation project last November as part of the government’s broader strategy to become home to 20 startups worth more than $1 billion each, unicorns, in the next decade.
Together with other GCC petrostates, the UAE made a seismic shift by unveiling a raft of measures to eliminate planetwarming emissions within its borders last October. The government said that it would invest $163 billion (AED 600 billion) in renewable energy as part of its strategy to achieve net-zero emissions by 2050. The Gulf state is also extensively investing in nuclear energy, solar plants and sustainable transport.
Expo 2020
The World Bank expects Dubai’s hosting of the World Expo to stimulate sustainable growth in the UAE driven by economic stimulus measures being implemented at an emirate level by the Dubai and Abu Dhabi governments.
“Expo 2020 Dubai and its legacy are expected to contribute $33 billion (AED 122.6 billion) of gross value added (GVA) to the UAE’s economy from 2013–31 as well as support up to 905,200 full-time equivalents (FTE) job-years, which is equal to approximately 49,700 FTE jobs per annum,” according to a report published by EY before the outbreak of the coronavirus.
The Dubai Expo site, which will be redeveloped to District 2020 after the expo, is also projected to play a critical role in the country’s future vision by supporting sustainable economic development as the UAE moves towards an innovative-driven economy while creating a business environment to support key growth sectors such as logistics and transport, travel and tourism and property development.
Structural reforms
In a major policy shift, the UAE said it will levy a 9% federal corporate tax on business profits for the first time starting from June 1, 2023, ditching the tax-free regime that made it the Middle East region’s business hub but attracted international scrutiny over transparency.
Fitch Ratings cautioned that the UAE’s federal corporate tax could have uneven credit implications on rated corporates, with privately-owned corporates and government-related entities rated on a bottom-up basis most affected.
Moody’s said that although the introduction of a corporate tax will broaden the federal government’s income base, it would negatively affect the credit profiles of companies operating in the country.
The government also revamped its Commercial Companies Law by scrapping a law that required an Emirati shareholder or agent when foreigners are opening a company in the country. The UAE’s new company law came into effect last June and it is expected to boost the country’s economic competitiveness.
The UAE plans to offer Emirati citizenship and passport to a set group of foreigners, including investors, professionals, and special talents – a first in the Gulf region as the government looks to give its huge expat population a bigger stake in the economy to drive growth. The country also unveiled a new class of visas ‘Green Visa’ last September, the Gulf state’s latest step in a series of efforts aimed at attracting talent and boosting growth.
Over the years, the UAE has implemented a raft of economic and structural reforms, including issuing citizenship to foreigners, to attract investment, foreign talent, enhance competitiveness and maintain its regional trade and business hub status amid growing economic rivalry from its Gulf neighbours.
– International Monetary Fund
