A pair of Saudi law firms is advising two of the Kingdom's biggest banks on a potential merger that could create the third-biggest banking entity in the Gulf Cooperation Council (GCC). 

Abuhimed Alsheikh Alhagbani Law Firm (ASH) is advising the National Commercial Bank (NCB), according to the deal announcement, while Khoshaim & Associates is representing Samba Financial Group, according to a separate statement. ASH is the Saudi partner of Clifford Chance, while Khoshaim is the affiliate of Allen & Overy.

The banks said in a statement that they had entered a 'framework agreement' pending "a reciprocal due diligence process and [negotiation of] definitive and binding terms of a potential merger."

The merger is expected to create an entity with total assets of around $214 billion, making the combined unit the third-largest lender in the region.

Qatar National Bank is the GCC's largest, with total assets of $260 billion at the end of 2019. First Abu Dhabi Bank (FAB), the second-largest bank, came about through the merger of National Bank of Abu Dhabi and First Gulf Bank in 2016. The group had total assets of $224 billion at the end of last year.

Previously, A&O affiliate Khoshaim & Associates assisted Saudi Aramco in the acquisition of a 70% stake in the shares Saudi Basic Industries Corporation (SABIC) worth SAR260 billion ($69 billion), a deal that closed June 14, and the largest in Saudi M&A history. In cooperation with Clifford Chance, ASH advised the Saudi Public Investment Fund on the other side of the deal.

White & Case and Latham & Watkins assisted Saudi Aramco on its December 2019 initial public offering. 

Although the Saudi economy is over twice the size of the UAE's, total banking assets in the UAE stood at $725 billion at the end of last year, compared to $652 billion in the Kingdom, according to accounting firm KPMG.

The UAE banking sector is more vulnerable to mergers and acquisitions, with 22 local banks and 27 affiliates of foreign banks, making it over seven times more 'banked' than Saudi Arabia. 

"In comparison to other jurisdictions, the UAE's banking market is arguably over-saturated," said Will Seivewright, partner and head of corporate, Middle East, DLA Piper in a note. 

He said there were 13 licensed local banks and 13 licensed and operational foreign banks in Saudi Arabia in May 2020, serving a population of 34.81 million people, or 0.07 banks per 100,000 people. The UAE, which had a population of 9.6 million people, had 49 banks, or 0.51 banks per 100,000 people.

A&O and CC declined to comment. 

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