MUSCAT: MSX30 Index ended the week up by 1.30%. The Financial Index ended the week higher by 1.59%. The industrial Index and service index ended the week up by 1.02% and 0.82% respectively. The MSX Shariah Index was down by 0.14% for the week.
Further to the disclosures made on June 19, 2022 and on July 26, 2022, Sohar International Bank and HSBC Oman announced that their respective Boards of Directors had approved the entry into a binding merger agreement, under which the two banks agreed to take the necessary steps to implement a merger by incorporation. As agreed, HSBC Oman and Sohar International will merge and all of the assets and liabilities of HSBC Oman will be transferred to Sohar International. On completion of the merger, HSBC Oman will cease to exist as a legal entity and its shares will be cancelled. The shareholders of HSBC Oman will be offered consideration valuing HSBC Oman at l.0x book value, with such consideration consisting of shares of Sohar International with the option for the shareholders of HSBC Oman to elect to receive the consideration in cash, provided that the maximum cash consideration payable by Sohar International to the shareholders of HSBC Oman that elect to receive cash consideration shall not exceed 70% of the total consideration payable by Sohar International. The shares of Sohar International that form part of the consideration to the shareholders of HSBC Oman shall value Sohar International at l.0x book value. The respective book value of each bank shall be calculated at a later date (which is currently expected at the end of the first quarter of 2023) before the banks invite their shareholders to vote on the merger in an extraordinary general meeting. Only at legal completion date will HSBC Oman merge into Sohar International to become a single bank.
This is positive news from the banks as entry into a binding agreement means that both banks are committed to undergoing the proposed merger by incorporation. However, the merger is still subject to approvals from relevant regulatory bodies as well as from the respective shareholders of the two banks, and is expected to complete in the second half of 2023. As per our calculations, BKSB’s BVPS at end-2022e is RO 0.126 while for HSBC Oman, we are forecasting a BVPS for 2022e at RO 0.179.
Our analysis of 9M22 detailed financials of Oman conventional banks indicates that: ECL Stage-wise data indicates that over 70% of total of each bank's exposure is in Stage 1 of impairment or in simpler words, is performing, with the remainder being in Stage 2 and Stage 3, except for HSBC Oman. Bank Muscat, HSBC Oman, Ahli Bank and Bank Dhofar have provision cover > 100%, indicating prudent provisioning norms. HSBC Oman has the lowest NPL ratio at 3.1% while Bank Dhofar at 5.73% has the highest. The highest exposure in Stage 3 (NPLs) is for NBO and Bank Dhofar (at about 6% each), while the lowest exposure in Stage 3 is for HSBC Oman and Ahli Bank. Within exposures in Stage 3, Bank Muscat has the highest provision cover, followed by HSBC Oman and Bank Dhofar, while Sohar International has relatively lower coverage at 57%. Ahli Bank and Bank Dhofar have the highest % of restructured loans; however, for Ahli Bank, more than 50% of restructured loans are in Stage 3. [Courtesy: U-Capital]