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| 16 May, 2018

Alawwal and SABB to merge to create Saudi Arabia's third largest bank

The merger is the first major banking tie-up in almost 20 years as Saudi Arabia embarks upon a plan to transform its economy

Investors talk with each other as they monitor a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia June 29, 2016.

Investors talk with each other as they monitor a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia June 29, 2016.

REUTERS/Faisal Al Nasser

DUBAI  - Saudi British Bank (SABB) and Alawwal Bank have agreed a merger that would create Saudi Arabia's third-biggest bank with assets of around $77 billion, the two banks said on Wednesday.

The first major banking tie-up in the kingdom for around 20 years comes as Saudi Arabia embarks upon a plan to transform the economy and cut its dependence on oil revenues.

The boards of the two banks have reached a non-binding agreement on the share exchange ratio, subject to several conditions, the two banks said in separate joint statements to the Saudi Arabian bourse.

SABB, which is 40 percent owned by HSBC Holdings, and Alawwal said in April last year they had agreed to start talks on the merger.

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Alawwal is 40 percent owned by Royal Bank of Scotland .

"A binding agreement is yet to be entered into between Alawwal bank and SABB," the two banks said. "Any binding agreement to proceed with the merger will be subject to a number of conditions, including SAMA [central bank], other regulatory authorities, and the shareholders' approval."

Progress on the merger had taken longer than expected partly because the regulatory environment for bank acquisitions in Saudi Arabia is relatively untested. Shareholders were also assessing any potential impact from the kingdom’s anti-corruption drive, two sources told Reuters in January.

The steps still to be agreed include completion of confirmatory due diligence, finalisation of the merger deal and agreement on a number of other commercial issues, the banks said.

Based on the preliminary agreement, Alawwal shareholders would receive 0.485 SABB shares for each Alawwal bank share, they said.

Based on the exchange ratio and the closing price of 33.5 riyals ($8.93) per SABB share on Monday, the last trading day prior to the date of this announcement, the merger would value each Alawwal bank share at 16.3 riyals and Alawwal's existing issued ordinary share capital at approximately 18.6 billion riyals, the statement said. This represents a premium of 28.5 percent to the Alawwal Bank share price, the banks said.

“ merger would be a win-win situation. It would create the third-largest bank in the kingdom in terms of assets and net profit, which could reach 5.9 billion riyals annually,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

($1 = 3.7498 riyals) (Additional reporting by Saeed Azhar in Dubai and Marwa Rashad in Riyadh; Editing by Ghaida Ghantous and Catherine Evans)

© Reuters News 2018