NBO pulls out of BankMuscat merger

AFTER months of negotiations and board meetings, National Bank of Oman (NBO) has called off its proposed merger with BankMuscat. Although the much-publicised merger had been delayed due to procedural issues it was expected to be completed later this month.

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By  Rhys Jones Published  March 6, 2005

AFTER months of negotiations and board meetings, National Bank of Oman (NBO) has called off its proposed merger with BankMuscat. Although the much-publicised merger had been delayed due to procedural issues it was expected to be completed later this month. The boards of both banks approved a merger proposal on September 23, 2004 with the original completion date for the merger set for January 1, 2005, which was later deferred to March 31, 2005. On January 9 Arabian Business reported that the proposed merger was in serious doubt because of alleged improper and unethical practices at NBO during the 1990s. NBO last week wrote to the Muscat Securities Market (MSM) conveying its decision to discontinue the merger process. The move followed an NBO board meeting held last Monday. “The board of directors of NBO, which met on February 28, 2005, keeping the best interest of the shareholders in mind, in view of the delays in reaching an agreement on the outstanding issues, has decided not to pursue with the proposed merger between NBO and BankMuscat,” wrote Murtadha Ahmed Sultan, deputy chairman, NBO in the letter to the MSM. It is widely believed that NBO pulled out of the merger because of problems the two parties had in reaching an agreement on NBO’s net worth. A report, which was presented at the February 15 BankMuscat board meeting, weighed down NBO’s net worth from US$261 million — which was the basis for merger — to US$249 million as a result of the independent auditor’s (KPMG) due diligence report. BankMuscat appointed KPMG to review the reasonableness of the provisions made by NBO as of December 31, 2004. Once KPMG’s report was accepted, both the banks were supposed to call for general meetings where the merger proposal would be put in front of shareholders for approval. However, BankMuscat stuck to KPMG’s valuation rather than that of NBO’s financial statements. “The board of directors of BankMuscat, by majority has decided to accept NBO’s net worth as US$249 million or as audited by the bank’s (NBO) statutory auditors and duly approved by the Central Bank of Oman (CBO), as at the end of December 31, 2004, whichever is lower. This is against the net worth of US$261 million expected earlier,” said Sheikh AbdulMalik bin Abdullah Al Khalili, chairman, BankMuscat. Meanwhile, the UAE’s Shuaa Capital is said to have initiated negotiations to buy the 35% holding the Suhail Bahwan Group has in NBO. The financial services company is believed to be pushing a deal through the Oman-based Onic Holding, where Shuaa holds a 30% stake. However, the Memorandum of Understanding (MoU) signed between the two banks forbids either bank talking to another party during the period of the merger talks. In another development, market sources suggest that NBO has received a notice from the Central Bank of Egypt asking the bank to either inject more capital into its Egyptian operation or face suspension of its banking licence there.

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