The Qatar Financial Market Authority (QFMA) has approved the proposed merger between Masraf Al Rayan and Al Khaliji, which will create the second largest lender in the country.
"We are pleased to inform that the QFMA has approved the merger application, subject to applicable laws and regulations," an Al Khaliji communique to the Qatar Stock Exchange said.
In January this year, both the lenders had jointly announced their intention of a potential merger. After the merger, Al Khaliji's business will be absorbed into Masraf Al Rayan, which will be the remaining legal entity to continue operations in accordance with Islamic Shariah principles.
The proposed merger would be the second consolidation in Qatar's banking system after Barwa Bank merged with International Bank of Qatar in 2019 to create Qatar's third-largest Islamic bank, and sixth-largest bank overall.
Masraf Al Rayan is Qatar's fourth-largest bank, with a 6% share of banking system assets at the end of December 2019. Al Khaliji is one of the smaller banks in Qatar, with a market share of around 3% of system assets as of the same date.
As per the merger proposal, Masraf Al Rayan will issue 0.50 shares for every Al Khaliji share, corresponding to a total of 1.8bn new shares issued to Al Khaliji shareholders. The merger is valued at QR8.2bn and will create a bank with combined assets of more than QR171bn.
The exchange ratio implies a premium to Al Khaliji shareholders of 21.4% versus the share price before the board meeting announcement to discuss the merger (closing share price as of January 5, 2021) and 66.7% versus the share price before the announcement of the initial negotiations regarding a potential merger (closing share price as of June 30th 2020).
The merger is expected to contribute positively to the economic development in Qatar by supporting corporate businesses and small and medium sized entities, and will also create a strategic partner for the public sector.
The merger will combine the key strengths of the two banks in the areas of retail and private banking services, corporate and government entities, capital markets, and wealth and asset management, giving the combined business both an excellent proposition for customers and stability through diversification for shareholders.
The merger would create significant scope for achieving cost efficiencies in the coming years and is expected to unlock cost synergies in the region of 15% of the “combined 9M’20 annualised cost base”, after the integration is completed, driven by increased scale and annual efficiency gains, the lender's joint statement had said.
Moody's, an international credit rating agency, had said the proposed merger would not only support profitability but also enlarge Islamic franchise and market share as well as give the required scale to support the retail banking and contain funding costs.
The merged entity would have total assets (conventional and Islamic) of around $45bn, or around 9% share of total banking system assets, the credit rating agency had said in a note.
Masraf Al Rayan has a strong relationship with the Qatari government, with loans to the government and public-sector entities making up majority of its financing book; while Al Khaliji has a solid corporate business, with loans to the government and public sector entities.