The Turkish lira crisis has helped to secure Dubai’s biggest bank, Emirates NBD, a discount of around 20% on the acquisition price it must pay Russia’s state-owned Sberbank for its Turkey unit Denizbank.
Emirates NBD said on April 3 that under a new agreement reached with Sberbank it will buy Turkey’s fifth largest private bank for Turkish lira (TRY) 15.48bn ($2.75bn), compared to the TRY14.6bn announced in May last year. When the original deal was announced the dollar value was given as $3.2bn, meaning the revised agreement provides a saving of around $400m. The TRY has lost 17% against the dollar since the first deal was signed.
Jaap Meijer, head of research at Arqaam Capital, told Bloomberg the Dubai lender might actually save around $700mn because the initial price given was $3.45bn if accrued interest, as required under the first agreement, was added to the transaction. The revised price is at 0.9 times book value, slightly lower than the 1.05 to 1.06 times book value in the original deal, Meijer was reported as saying. Emirates NBD shares surged on news of the changed deal.
The price adjustment now “demonstrates better M&A discipline’’ and values Denizbank at a 20% premium to Turkish peers, which is fair, Meijer was also cited as saying.
He added in an earlier note to investors: "Even though the deal will destroy some shareholders’ value, reflecting Emirates NBD’s desire to enter a new market rather than showing M&A discipline, the unlocking of value through the foreign ownership limit should be a multiple of that."
Hit by the currency crisis that reached its worst point in August, Turkey sunk into recession at the end of last year. To combat the depreciation of the TRY and surging inflation its benchmark interest rate has been hoisted to 24%, against inflation of slightly under 20%.
Sberbank, Russia’s biggest bank by assets, said it expected to receive $5bn from the sale of Denizbank, including capital and debt. The bank added that it expected the deal to be closed by the end of the second quarter.
Sberbank shifting back home
Sberbank’s present strategy involves shifting back to its home market. It bought Denizbank seven years ago for around $3.5bn when it wanted to establish a presence abroad.
Denizbank’s equity amounted to TRY15.51bn as of December 31, Emirates NBD said in a stock market filing. The deal is subject to regulatory approval.
The transaction is both Turkey’s largest M&A deal since 2012. It is also the biggest acquisition of the Dubai bank, the second biggest lender in United Arab Emirates (UAE).
Emirates NBD had $136bn in assets at the end of December, while Denizbank had $37bn, according to data compiled by Bloomberg.
Denizbank was Turkey’s ninth-largest bank by assets as of the end of September, according to banking association data.
Lenders in Turkey are currently facing government ‘advice’ that they should lower interest rates and reverse a decline in credit to help pull the Turkish economy out of its first recession in a decade. Turkish financial institutions, meanwhile, are contending with an expanding mass of bad debt and restructuring demands from companies struggling to repay FX loans.
However, Gulf-based banks like Turkey’s young and under-banked population of around 81mn.
Qatar National Bank bought National Bank of Greece’s Turkish unit in 2016, paying slightly less than book value. Commercial Bank of Qatar took full ownership of Alternatifbank the same year.
*Sberbank presentation in June 2018 (See page 60 for Denizbank deal).