Post-merger, NCB Cap to become Saudi's largest asset management firm: Moody's

Merged entity will have a combined market share of around 40%

  
Image used for illustrative purpose. Saudi traders monitor stocks at a Saudi Bank in Dammam.

Image used for illustrative purpose. Saudi traders monitor stocks at a Saudi Bank in Dammam.

REUTERS/Stringer

Moody’s Investors Service expects the potential merger between Saudi Arabia’s National Commercial Bank (NCB) and Samba Financial Group to reinforce NCB's asset management arm.

“If successfully executed, the merger will bring long-term benefits to NCB Capital including some product diversification into fixed income and alternative products, based on the assumption that NCB Capital shall be the surviving entity,” it said in a note Wednesday.

The two banks entered a binding merger agreement in 3Q 2020 following which the parent banks approved the merger of the capitals between NCB Capital and Samba Capital & Investment Management Company (Samba Capital) once the banks merger has been completed.

The merger, subject to regulatory approval, will reinforce the position of the merged entity as Saudi Arabia's biggest asset manager, based on assets under management (AUM), the ratings agency said.

The company will also gain access to a new client and business-partner base.

As of end of September 2020, NCB Capital had a 31 percent market share in Saudi Arabia, making it the largest player, while Samba Capital had a 4 percent share, occupying the sixth position. Moody’s estimates that the merged entity will have a combined market share of around 35 percent-40 percent.

NCB Capital's AUM will increase by about 12 percent-15 percent, pro-forma as of September 2020, creating a dominant player in the market, assuming that NCB Capital shall be the surviving entity. The entity will remain a small player on a global scale.

According to Moody’s, the merger poses some short-term downside risks. “Profitability will likely be negatively affected because of merger related expenses, but we expect synergies to support operational efficiency and profitability over time. The merger also raises initial integration risks, including a potential loss of focus on executing approved budgets and projects given the merged entity's large size.”

While the merger will bring some diversification, the products offered will be similar, ranging from equity, fixed income, and multi assets to alternative products. Samba Capital introduced Saudi Arabia's first ever sovereign sukuk fund in 2019.

(Reporting by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com

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