May 16, 2018 / 12:56 PM / 5 days ago

MIDEAST STOCKS-Saudi banks merger boosts Alawwal as geopolitical worries weigh on Gulf

* Geopolitics drags down most Gulf markets

* But Alawwal shares jump on bank merger news

* Deal will create third-largest Saudi bank

* Dubai Islamic Bank weighs on index

* Dana Gas, ADNOC Distribution up in Abu Dhabi

By Davide Barbuscia

DUBAI, May 16 (Reuters) - Saudi Arabia’s Alawwal Bank soared on Wednesday after the announcement of its planned merger with Saudi British Bank, while most Gulf stock markets closed in negative territory on the back of rising geopolitical concerns.

The general weakness was in line with Asian markets, which slipped on Wednesday after North Korea called off talks with Seoul, throwing a U.S.-North Korean summit into doubt. Oil prices were also not supportive, down because of a rise in U.S. crude inventory and despite ongoing output cuts by producer group OPEC and the looming U.S. sanctions against Iran.

In Saudi Arabia the index lost 1 percent, with most companies in the oil and gas and petrochemical sectors shedding some value. Blue-chip Saudi Basic Industries Corporation (SABIC) shed 1 percent.

But banks were in the spotlight, as Saudi British Bank (SABB) and Alawwal Bank agreed on a merger that, once completed, will create the country’s third-largest bank, with assets of around $77 billion.

“Over the last 12 months we have seen a wave of consolidation announcements across the GCC banking sector, as the industry struggles to identify areas of growth following reduced economic activity due to lower oil prices,” said Salman Bajwa, senior executive officer at Emirates NBD Asset Management.

If approved, the deal would see SABB acquire smaller peer Alawwal for 18.6 billion riyals ($4.96 billion) in what would be the first major banking merger in the kingdom in two decades.

The announcement on Wednesday implied a valuation premium of around 28 percent on the shares of Alawwal Bank. Shares in Alawwal jumped 10 percent to 13.92 riyals in its heaviest trade since April 2017, while SABB shares sank 4.5 percent as some investors bet the bank was overpaying.

“In most M&A exercises, the smaller parties tend to benefit from being paid premiums by the bigger partners or acquirers. That is certainly true in this case,” Bajwa said.

Stocks in other Saudi banks were mixed. National Commercial Bank (NCB) initially fell as it went ex-dividend but then rebounded to gain 0.6 percent. The bank announced the resignation of its chief executive, Mohammed al-Ghamdi, who will be replaced on an acting basis by Faisal Omar al-Sakkaf.

Al-Sakkaf is expected to become chief executive permanently once formal procedures are completed, sources told Reuters.

Separately, NCB said on Wednesday that its shareholders had approved a hike in the bank’s capital by 10 billion riyals via the issue of bonus shares.

In Dubai the index slipped 0.2 percent as Dubai Islamic Bank dropped 1 percent to 4.83 dirhams ($1.32). Trading of the bank’s rights issue began on Wednesday, allowing the purchase of the stock at 3.11 dirhams; the rights plunged 11.0 percent to 1.62 dirhams.

In Abu Dhabi, where the index edged down 0.1 percent, Dana Gas rose 1 percent after saying it received a dividend payment of $22.8 million from Pearl Petroleum Co, which produces natural gas in Iraqi Kurdistan.

ADNOC Distribution gained 1.2 percent after reporting a rise in first quarter net profit to 542.2 million dirhams, a 12.1 percent increase year on year, in line with some analysts’ expectations.

SAUDI ARABIA

* The index shed 1 percent to 7,958 points.

DUBAI

* The index lost 0.2 percent to 2,932 points.

ABU DHABI

* The index slipped 0.1 percent to 4,467 points.

QATAR

* The index gained 0.3 percent to 8,950 points.

KUWAIT

* The index edged down 0.1 percent to 4,776 points.

BAHRAIN

* The index slipped 0.1 percent to 1,273 points.

OMAN

* The index shed 0.7 percent to 4,654 points.

EGYPT

* The index was flat at 16,993 points. ($1 = 3.7502 riyals) ($1 = 3.6730 UAE dirham) (Editing by Raissa Kasolowsky)

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