UPDATE 3-BNP joins rival SocGen in divesting Egyptian assets

Thu Dec 20, 2012 8:30am EST

* Dubai lender ENBD buying BNP Egypt unit for $500 mln

* Deal expected to close in Q1 2013

* ENBD eyes more buys to hike int'l revenue to 20 pct

* Sale follows $2 bln SocGen deal to sell Egypt arm

By Dinesh Nair and David French

DUBAI, Dec 20 (Reuters) - BNP Paribas is to sell its Egyptian arm for $500 million to Dubai lender Emirates NBD , becoming the latest French lender to boost its capital by selling out of the North African country.

BNP, like other European banks, has spent the past year cutting assets and staff to better withstand the euro zone's debt crisis and tougher global Basel III rules on risk-taking.

For ENBD, majority government-owned, the deal allows it to diversity its business after being been hit in recent quarters by its exposure to state-linked entities in Dubai that have had to restructure billions of dollars of debt.

"This deal represents an excellent opportunity for Emirates NBD to enter the promising Egyptian market and achieve our strategic aspiration of expanding regionally," the bank's chairman, Sheikh Ahmed Bin Saeed Al Maktoum, said.

Despite political turmoil in Egypt, cash-rich Gulf investors remain keen to raise their presence in the most populous Arab state after last year's revolution, even as European banks repair damaged balance sheets by selling some overseas units.

French banks have deep historical roots in Egypt. While they retreated in the wake of the post-colonial Suez Crisis of 1956 and the rise of Arab nationalism, they returned and took advantage of the opening up of the Egyptian economy - a move eventually cut short by the euro-zone debt crisis.

Societe Generale sold its majority stake in National Societe Generale Bank to Qatar National Bank for $2 billion last week. A third French bank, Credit Agricole, may also sell up.

"The attraction of Egypt for French banks was the sector's rapid growth," said Jean-Pierre Lambert, analyst at Keefe, Bruyette & Woods.

"It is however the case that BNP's subsidiary was under-sized relative to SocGen's. And as for SocGen's exit from Egypt, that was more an opportunity to generate capital for incoming Basel III requirements."

A BNP spokeswoman said the sale would lift its core capital ratio under Basel III, which at end-September was 9.5 percent, by 0.05 percentage points.

Kevin Flannery, head of ENBD's international business, said the bank would look for more acquisitions to boost its share of revenue from outside its home market to 20 percent, though it had no other deals in the pipeline. Foreign business now accounts for around 5 percent of revenues for the bank, which was formed in 2007 by combining two Dubai institutions.

"Ever since the merger, we have wanted to be a regional powerhouse," Flannery told Reuters, adding that the deal was a step towards the goal of being the Middle East's leading bank.

Following sales by both SocGen and BNP, the focus may now shift to Credit Agricole's 60 percent in Credit Agricole Egypt , a banking source familiar with the matter said.

"There have been some informal discussions related to that asset. We would expect it to come on the block soon," the source said, speaking on condition of anonymity.

EGYPT BUSINESS

ENBD will buy BNP's 95.2-percent stake in its Egyptian arm and make an offer to minority shareholders for the remaining 4.8 percent, it said in a bourse statement on Thursday.

The transaction, which is expected to close by the end of the first quarter of 2013, values the business at 1.6 times its book value as of September 2012, ENBD said. It will be funded through its own cash resources, Flannery said.

The valuation is below the two times book value paid by QNB when it agreed to buy SocGen's Egyptian arm.

"We see this as a positive development for ENBD as the deal represents the bank's first step into growth markets, with near-term growth prospects in UAE subdued," EFG Hermes said in a research note. "However, the size of the acquired bank ... indicates that it is pursuing international expansion cautiously."

BNP put its business in Egypt up for sale in June. Industry sources told Reuters this week that ENBD had outbid Morocco's Attijariwafabank for the asset.

Once the deal is completed, the BNP Egypt business will boost ENBD's net income by 7 percent and revenue by 4 percent, Neeraj Makin, ENBD's vice president, strategic acquisitions, told Reuters.

Both total assets and deposits will increase by 3 percent.

BNP has a network of 69 branches in Egypt and operates retail, corporate and private banking operations. Retail banking represents the majority of its business.

The Cairo-headquartered business had revenues of 731 million Egyptian pounds ($118.5 million) and net earnings of 222 million Egyptian pounds ($36 million) in 2011, ENBD said.

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