The merger will be carried out through the full absorption of IBO's assets and liabilities by BankMuscat, and the issue to IBO shareholders of convertible BankMuscat bonds. 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 (MEED 19:10:01). The pricing of the conversion will be based on the weighted average price of BankMuscat shares during the three months prior to the conversion date.

The value of the convertible issue will be dictated by the net worth of IBO on 31 December 2001, expected to be in the region of RO 27 million ($70 million). The nominal value of the convertible bonds is expected to be priced to par with IBO's net asset value per share.

Analysts say the deal is well structured, with IBO shareholders being offered a well-priced entry into BankMuscat equity. BankMuscat will benefit from the receipt 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 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).