Earlier this year the Kuwaiti government sold 300 million shares in BKME, the equivalent of 42.5 per cent of the bank's equity (MEED 24:5:02). Priced at KD 0.311 ($1.00) a share, the two major participants in the sale were AUB, which raised its stake to 43 per cent from about 22 per cent, and Kipco, which raised its position to about 29 per cent.

'At the moment, both sides are still seeking to buy the shares of the other,' says one of the interested parties. 'But we are getting pretty close to the end of negotiations. There will be a break for Eid and then we will get back round the table. I hope the negotiations will be completed by the end of the year.'

The two other major shareholders in BKME are both government agencies: the Public Institute for Social Security holds an 11 per cent stake, and the Kuwait Investment Authority has 5 per cent.

Whichever institution ends up as the majority shareholder in BKME, it will have its identity radically changed. Kipco's stated aim is to merge the bank with another of its Kuwaiti subsidiaries, Burgan Bank. The result would be the creation of the second largest financial services institution in Kuwait, in terms of assets and equity.

If AUB takes control of BKME, it will be the latest edition to an expanding stable of regional banking assets. AUB has been preparing for a takeover of BKME for some time. It started building a position in the bank in early 2001, when it bought a 15 per cent stake from the Kharafi Groupin a $133 million transaction (MEED 30:3:01). The position was expanded through aggressive open market trading over the next 12 months.

Links between AUB and BKME have been strengthened by BKME's decision to acquire stakes in AUB. Two blocks worth more than 5 per cent were acquired in December 2001 and January this year (MEED 11:1:02).

AUB is itself the result of the merger of Al-Ahli Bank of Bahrain with London-based United Bank of Kuwait. Through the merger and the subsequent acquisition of Commercial Bank of Bahrain, a strong franchise is being built and it is keen to enter other GCC markets.