Shares in Dubai-listed investment bank Shuaa Capital surged on Sunday after the company confirmed to the exchange media reports about initial discussions for a merger with its major shareholder, Abu Dhabi Financial Group.

The investment bank’s statement said that discussions have commenced with Abu Dhabi Financial Group “regarding the possibility of a merger of the two institutions to become a larger, financial listed firm".

Television station Al-Arabiya had reported the news earlier in the day, citing sources. The statement said the structure of the conbined entity would be "subject to legal and regulatory consent.”

Shuaa Capital’s shares rocketed 14.95 percent on Sunday following the announcement and the bank’s stock was the best performer on Dubai’s exchange, but the company's shares are still down 12.8 percent since the start of 2019, despite today’s surge.

On the merger possibility between the two entities, Jaap Meijer, head of equity research at Arqaam Capital, told Zawya by email that it will depend on “the valuation of Shuaa, whether ADFG can extract value from the platform.”

“So far the 48% ownership has not led to a new strategic direction, and only because of one-offs Shuaa was able to print a net profit last year,” Meijer added. ADFG bought a 48.36 percent stake in Shuaa Capital in 2016.

Shuaa Capital announced a net profit of 27.2 million United Arab Emirates dirhams for the year 2018, compared to 74 million dirhams in 2017, translating into a 63.2 percent drop.

The investment bank said in a press release following the earnings announcement for the year 2018 that it made “mark-to-market charges on its investments” in the fourth quarter of 2018, as well as incurring  “additional, one-off provisions on legacy assets.”

Mark-to-market accounting refers to the accounting for the fair value of an asset or liability based on the current market price.

(Reporting by Gerard Aoun; Editing by Michael Fahy)


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