The inherently Shariah compliant nature of M&A transactions means that they remain an important facet of the Islamic finance industry. A report in July found that merger and acquisition (M&A) transactions in the Middle East grew by 250% in the second quarter of 2014 compared to the first quarter of the year, at a value of US$14 billion. REBECCA SIMMONDS reviews activity over the last six months.
In the latest Ernst & Young (EY) ‘MENA capital confidence barometer’, 75% of executives surveyed expected higher local deal volumes in the MENA region. The M&A activity of sovereign wealth funds was worth US$14.5 billion in 2013 and represented 29% of total M&A, whilst outbound transactions, worth US$18.5 billion, represented 37% of all M&A transactions in the region.
Regulatory updates
In April 2014, the Qatar Financial Markets Authority (QFMA) issued five new laws, one of which dealt with mergers and acquisitions, based on international standards and best practices. The law addresses the protection of shareholders of a target company (the acquired company), hostile acquisition, compulsory acquisition, cross-border acquisition and disclosure of information to shareholders. Under the new regulation clarification has also been made on the point at which a bidder is deemed to be making a bid for the target.
Africa
Egypt-based investment EFG Hermes, which offers Shariah compliant products, was subject to a bid by an alliance between New Egypt Investment Fund and Beltone Financial for a 20% stake in the bank. The bid of EGP16 (US$2.23) per share, or US$257 million for the 20% stake was rejected as being below the fair price appraisal of EGP22.93 (US$3.2) by a financial advisor appointed by the bank.
Asia
In Malaysia, the last six months have seen a glut of M&A activity: with the strategic partnership between AMMB Holdings and MetLife concluded in April resulting in the introduction of two new brand names in the Takaful and insurance market: AmMetLife Takaful and AmMetLife. AMMB Holdings sold 50% minus one share of its stake in both AmTakaful and AmLife Insurance as well as a 20-year exclusive distribution between AmLife and Am Bank, and between AmTakaful, AmBank and AmIslamic Bank to MetLife International Holdings for a total of RM812 million (US$248.28 million). The signing of the deal was witnessed by president Barack Obama on a state visit to Malaysia.
The deal agreed between Affin Holdings and Hwang-DBS in January is still ongoing and is expected to be concluded in October this year. The agreement was for Affin’s purchase of 100% of HwangDBS Investment Bank, 70% of Hwang Investment Management, 49% of its Islamic fund management business and 100% of its futures dealing arm in a cash deal worth RM1.36 billion (US$409.86 billion).
In March, it was reported that Affin was interested in extending its reach within Islamic banking to Indonesia, with the purchase of a 24% share in Indonesia’s Panin Bank Syariah. However talks were discontinued as it became clear that Dubai Islamic Bank (DIB) was making a bid for the stake in the Indonesian institution. In June this year, DIB confirmed the successful conclusion of the first phase of acquisition and announced plans to begin the formal regulatory approval process to obtain significant shareholder status from Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan). Once gained, DIB will move to complete the second phase of its share purchase strategy and increase its shareholding in the bank to up to 40%.
Possibly the most fêted news in the Islamic finance M&A sector in Malaysia in recent months has been the announcement in July that CIMB Group Holdings, Malaysia Building Society and RHB Capital have entered into a 90-day exclusivity agreement to discuss terms for a potential tripartite merger. The banks have been granted a six-month window by Bank Negara Malaysia to discuss the merger and negotiate plans for a possible Islamic megabank.
Since the announcement, industry rumors have also identified CIMB as a potential candidate for the acquisition of Philippine-based Al-Amanah Islamic Investment Bank. This has however been dismissed by CIMB, which has said that it is concentrating on the Malaysia-based three-way merger.
Takaful
In March, Mark O’Dell, group CEO of Manulife, stated that Manulife Holdings, the Malaysian unit of Canada-based Manulife Financial, was interested in entering the Takaful market, although it was unclear whether the Malaysian unit would be applying for a Takaful license of its own, or entering the market through M&A.
Under the Islamic Financial Services Act (IFSA) 2013, which came into force in July 2013, Malaysian Takaful companies are required to split their life and general businesses under separate licenses, opening the market to M&A’s within the industry as companies seek to save costs.
Takaful provider Takaful Ikhlas, a unit of MNRB Holdings has formed a task force at group level to assess IFSA compliance throughout the group and has been identified by analysts as a prime candidate for a potential M&A.
Middle East
In Dubai, private equity firm Abraaj Group invested in a major stake in Tunisian hospital Clinque Taoufik in July and Thailand-based out-of-school education provider KPN Academy in May. The company also announced a tender for acquisition of Egypt-listed Cairo Medical Center and the intention to acquire up to 100% of the shares of confectionary company BiscoMisr Company through the issue of a mandatory tender on the Egyptian Stock Exchange. Citigroup has been appointed to assess options for the group’s indirect stake in Pakistan-based power produced K-Electric, which the company is connected to through its controlling stake in KES Power, K-Electric’s majority stakeholder.