Boubyan Bank: Which Bidder Makes the Most Sense? (Re-post)

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The purpose of this article is to determine which bidder for KIA’s Boubyan Bank stake (National Bank of Kuwait, Securities Group, and Althemar Holdings) makes the most sense. To do that we look at the following issues:

Current Holdings in the Bank:

The Securities Group does not own a stake in Boubyan, while Althemar owns 4.7%, according to Alqabas Newspaper. NBK owns 14.33% of Boubyan’s equity, and they are going to buy the Commercial Bank of Kuwait 19.2% stake once legal matters are settled. With the addition of the KIA stake, NBK’s ownership will equate to 52.53%. NBK is the only bidder that will own a majority of the bank’s stock if it outbids the other parties. A majority is needed to turnaround the ailing bank and to instate new management.

Synergies:

The Securities group is an investment firm, while Althemar is listed as a real estate company in the Kuwait Stock Exchange. NBK is the only bank bidding for the Boubyan stake, thus, more synergies exist between NBK and Boubyan as opposed to the other bidders. NBK has an extensive knowledge of the Kuwaiti banking industry that it can share with Boubyan. Boubyan can also make use of NBK’s employees and management.

Buying Power:

231 million shares of Boubyan Bank are up for grabs. The minimum price that KIA designated is KD 0.550, yielding an overall price of KD 127.5 million. As of March 31, 2009, NBK had KD 3.2 billion in cash, Securities Group had KD 8.645 million in cash, and Althemar had KD 2.137 million in cash. In fact, the value of Securities Group and Althemar’s total assets equal to KD 128.6 million and KD 166.5 million, respectively. The two companies seriously need leverage in order for them to acquire the Boubyan stake. Also, NBK’s financial strength may allow it to have more flexibility in choosing the bid price.

According to my short analysis, I believe that the National Bank of Kuwait seems to be the most appropriate buyer of KIA’s Boubyan Bank stake.

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NBK bought a 13.2% stake for KD 0.550, while Securities Group bought the remaining 6.6% for KD 0.560. Our analysis is supported by the outcome of the auction that NBK is the most relevant buyer.END