The merger with IBO remains subject to shareholder approval, and the two banks are drawing up details of the proposals. ‘We are expecting the EGMs [extraordinary general meetings] to be held in November,’ says a senior BankMuscat official. ‘And the merger should be completed by the end of the year.’
At the heart of the transaction will be the issue of convertible bonds to IBO shareholders. The instruments will be compulsorily converted into BankMuscat stock two years after the date of issue, and will pay a semi-annual coupon of 8.5 per cent in the interim period.
‘The deal has been attractively priced, with the net worth of IBO valued at about RO 27 million [$70 million],’ says the official. ‘IBO’s net asset value per share is RO 1.100 [$2.86] and each of the convertible bonds has a nominal value of RO 1.100 [$2.86].’
The strong yield from the convertible bonds and the prospect of a well-priced entry into BankMuscat’s equity are the attractions for IBO shareholders. BankMuscat will benefit from the arrival of more than RO 40 million ($104 million) in fresh assets, and an effective capital injection that will bring no dilution of earnings per share for two years.
The proposed merger of BankMuscat and IBO is far from being fresh thinking. A similar deal was proposed two years ago, but foundered when IBO pulled out of negotiations (MEED 12:11:99).
BankMuscat is also bent on other expansion. It has received full regulatory approval from the local authorities for its proposed acquisition of the onshore and offshore banking operations of ABN AMROin Bahrain. ‘Negotiations over the exact pricing of the deal still need to be completed, but we are making good progress and the deal will be finished by the end of the year,’ says the official.
The bank is also in the process of finalising an expansion of its presence in India. It plans to acquire a 20 per cent position in IDBI Bankthrough the injection of $12 million of fresh capital into the commercial high street bank. ‘The deal will also involve the transfer of the BankMuscat branch in Bangalore to IDBI Bank, so the overall value of the transaction is about $25 million-27 million,’ he says.
Other ongoing acquisitions at BankMuscat include the purchase of Al-Ahli Securities, a local brokerage firm, from Oman National Investment Corporation. The acquisition, valued at RO 4.8 million ($12.5 million), will bring BankMuscat its first brokerage licence. The deal is expected to be completed by the end of October.
The flurry of acquisitions by BankMuscat follows the completion at the end of 2000 of its merger with Commercial Bank of Oman (ComBank). By this deal, which was also based on a convertible bond/equity swap, BankMuscat established itself as the largest bank in Oman in terms of assets (Banking, MEED Special Report, 7:9:01, pages 34-37).