Alwaleed to Buy Half of Credit Agricole's Saudi Fransi Stake (2)

Sep 12, 2017 7:50 am ET

(Bloomberg) -- After struggling to find an international buyer, Credit Agricole SA is selling half its stake in Banque Saudi Fransi to billionaire Prince Alwaleed bin Talal at a discount.

Alwaleed will buy 16.2 percent of Banque Saudi Fransi from the French lender through his Kingdom Holding Co. in a deal valued at $1.54 billion, according to a statement on the Saudi stock exchange Tuesday. The price of 29.5 riyals a share is an 11 percent mark down to Monday’s closing price. Credit Agricole initially tried to sell its entire 31 percent stake in Fransi as it refocused on it main markets, people familiar with the matter said in March.

International banks are grappling with how to approach the Middle East’s biggest economy, which blocks foreign control of local lenders. Some are positioning themselves for what’s expected to be a fee bonanza as the kingdom overhauls its economy and plans to list Saudi Arabian Oil Co. in what could be the largest-ever initial public offering.

Others are trying to exit. Royal Bank of Scotland Plc has been reportedly trying to sell its 40 percent stake in Alawwal Bank for almost a decade, and is now in talks to merge the business with HSBC Holdings Plc’s Saudi British Bank.

“We expect to see local buyers or other local banks taking over stakes of foreign investors, looking to exit their position in Saudi banks,” said Chiradeep Ghosh, an analyst at Securities & Investment Co. in Bahrain. “The foreign ownership cap is a deterrent to international banks who prefer to hold majority stakes.”

Foreign Interest

Still, interest in Saudi Arabia among the world’s major finance companies remains strong. Mitsubishi UFJ Financial Group Inc. is looking to hire in the kingdom as seeks to benefit from privatizations valued at more than $350 billion over the next five years. In April, Citigroup Inc. received an investment banking license to operate in the country after 13 years.

Alwaleed will become Saudi Fransi’s largest investor once the deal closes, adding to an extensive portfolio that includes a Citigroup stake which the prince has held since 1991. Kingdom Holding, in which Alwaleed owns 95 percent, is also an investor in News Corp., Twitter Inc., JD.com Inc., the Four Seasons hotel chain and Accor Hotels.

“Our investment in Banque Saudi Fransi demonstrates our core belief in the outlook for the Saudi economy,” Alwaleed said in a statement. The deal is part of Kingdom Holding’s efforts to increase its recurring cash flow and profitability, said Chief Financial Officer Mohamed Fahmy.

Additional Sale

For Credit Agricole, the disposal will lift its common equity Tier 1 ratio by about 20 basis points, the Paris-based bank said in a statement. The lender’s corporate and investment bank has an option to sell an additional 5 percent and is committed to keep a stake of at least 9.9 percent for a year after the deal.

“This stake had a positive impact on P&L but was not strategic because there weren’t cross-selling opportunities” with the rest of Credit Agricole’s activities, said Alex Koagne, an analyst at Natixis SA who has a buy rating on the stock. Credit Agricole’s Amundi SA asset-management unit in July completed the purchase of Pioneer Investments to grow in countries like Italy and Germany. Additional profits from that acquisition will help make up for the earnings fallout of the Saudi deal, Koagne said.

Credit Agricole Corporate and Investment Banking aims to “remain a strategic partner” of Saudi Arabia, Jean-Yves Hocher, the head of the unit, said in the statement. Credit Agricole CIB wants to develop its businesses in the country and grow its “direct presence” there, he said.

Credit Agricole rose 0.8 percent to 15.15 euros in Paris trading by 11:58 a.m. Shares of France’s second-largest bank are up about 29 percent this year, outpacing the 7 percent gain of Europe’s 45-member STOXX 600 Banks Index. Saudi Fransi shares dropped 3.3 percent to 31.9 riyals in Riyadh, while Kingdom gained 5.8 percent to 10.88 riyals.

(Updates with analyst comment in fifth paragraph.)

--With assistance from Filipe Pacheco

©2017 Bloomberg L.P.