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For my money

Abdul Aziz al Balushi, CEO, AHB, says there is no place for monopolies in a competitive scenario
BusinessToday reports

Curtains are down on one of the most keenly watched corporate takeover dramas in Oman. Alliance Housing Bank (AHB), which was serenaded by BankMuscat, Ahli United Bank (AUB), Dubai Bank and a bank from Qatar in May-June 2007, has accepted the offer from AUB. As the dust settles, the CEO takes stock of the situation and surveys the road ahead.

What is the current status?

Things are moving according to plan. AHB has signed a memorandum of understanding (MoU) with AUB of Bahrain. According to the terms of the agreement, AHB will issue 113.1mn new shares to AUB at RO0.450 per share, resulting in an inflow of RO50.88mn as shareholder's funds. AUB will take a 35 per cent stake in the bank as a part of the deal. The agreement is good news for our shareholders as the share premium of RO0.350 will be converted into 100 per cent bonus shares and allocated to them. The cash injection will increase AHB's capital base to RO64mn, a lot more than the RO50mn mandatory for a commercial bank. We are in the process of getting the requisite regulatory approvals for the MoU from the Central Bank of Oman (CBO). Once these are in place we will call for an EGM of our shareholders to get their approval.

There have been reports about a vertical split in the board of AHB on the offers.

There was no split within the board and all the decisions were taken unanimously. In any board there will be various viewpoints. During our board meetings, several strategies were thrown up and discussed.

The board evaluated scenarios like becoming a full-fledged commercial bank, whether to enter into an agreement with a local or a regional player and so on. Each option carried its own inherent risks and rewards. The final decision had to create value for our shareholders, at the same time averting the risks involved. Finally, the board unanimously agreed on a course of action that it thought was the best way forward.

The board looked at what each institution could bring to the table. AUB was paying a good price which would lead to a cash injection (compared to the 1:3.13 equity swap offered by BankMuscat). Secondly, AUB was taking a 35 per cent stake in AHB, allowing the bank to continue as a stand-alone entity (BankMuscat wanted AHB to merge with it). The conversion of this extra money into bonus shares was a hands down winner from the shareholder’s point of view. Also, AUB is a bank which has a proven track record in the region. Taking into account all these, it would have been foolhardy for the board to say no to the offer.

Leaving aside the immediate cash injection, are there any other synergies between AHB and AUB?

When you convert from a vanilla housing bank to a full-fledged commercial bank, there are opportunities and risks. AUB has an asset base of US$21.5bn as on June 30, 2007 – this is bigger than the asset base of all the banks in Oman put together. It has recently been recognised as the best bank in the Middle East for 2007 by Euromoney, an international finance magazine.

These are factors that will help us. A bigger asset base gives a bank more clout with vendors. This will help us in raising funds from the market at better terms. Being a one-product bank with no branch network, raising funds has never been easy for AHB. The association with AUB, a bank which has an A- and AA credit rating from Standard & Poor’s and Fitch, it will be easier for us to raise funds abroad. AUB has taken stake in banks in Qatar, Kuwait and Egypt, bringing about new efficiencies in the operations of those banks. We look forward to gaining from their experience in risk management, banking systems, procedures and distribution.

You mentioned about AUB's size. Is there a possibility that AUB will take away market share from local banks by writing business at low prices?

No, I do not see this as a possibility. AUB is a conservative bank. It is performance-driven and is looking at creating shareholder value. While it wants to grow, the bank will underwrite business only at attractive rates and not at cheap or loss-making pricing. Local banks should not look at AUB or the National Bank of Abu Dhabi as threats. As Oman opens up and new banks come in, local banks should look at improving their competencies. There is no place for monopolies in a competitive scenario and such an environment is beneficial for everyone.

Why has AUB taken a stake in AHB as it could have entered the sultanate on its own?
AUB wants to be a regional bank. However, instead of merely opening branches in other countries it believes in having a presence in various countries in terms of ownerships and partnerships. The bank has a stake in banks like Ahli Bank, Qatar; Delta International Bank, Egypt; Commercial Bank of Iraq; Bank of Kuwait and Middle East, Kuwait; Future Bank, Bahrain and AHB, Oman. The management has identified Oman as a target as it sees a lot of potential in this market.

The bank went through a phase of intense uncertainty. Did this have a bearing on your functioning?

Despite the uncertainty, our business has been growing. Our loan book has grown by 19 per cent to RO166.921 in June 2007 compared to the corresponding period last year. When Bank Sohar started, we lost 28 per cent of our workforce, but we have hired new people and are investing in their training. Our team's morale is high and I feel lucky to be a leader of this group of loyal and committed employees. Our focus on our employees and customers will make AHB one of the premier banks in the sultanate in a year.

Coincidentally, this is the second time in your career that you have gone through such an uncertain phase. At National Bank of Oman you saw something similar when it was considering offers from BankMuscat and Commercial Bank of Qatar. What are your thoughts?

I have learned that you can never rule out uncertainties or unpredictability in your career. As a leader one should take such things in his stride and look at things positively. No news is bad news as long as you have such an attitude. In a competitive environment, businesses have to learn to operate with an element of uncertainty and be open to such changes.