StanChart Is Still in Play as Abu Dhabi's FAB Explores $35 Billion Offer

  • In Business
  • 2023-02-09 08:59:56Z
  • By Bloomberg

(Bloomberg) --

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First Abu Dhabi Bank PJSC is pressing ahead with a potential offer for Standard Chartered Plc, after a move to put earlier takeover plans on hold didn't halt its ambitions to become a global financial powerhouse.

Under the code name Silver-Foxtrot, officials at the Abu Dhabi bank are working under the radar on a possible bid once a cooling off period required by UK takeover rules elapses, according to people familiar with the matter. FAB, as the bank is known, recently completed due diligence on the London-based lender, the people said, asking not to be identified because the matter is private. Any deal would be dependent on market conditions and the performance of Standard Chartered's share price, they said.

FAB - which is worth about twice as much as Standard Chartered - is exploring an all-cash bid of in the range of $30 billion to $35 billion, the people said. Any acquisition would be funded by its backers, which include Abu Dhabi sovereign fund Mubadala Investment Co. and the emirate's ruling Al Nahyan family, they said. FAB's Chairman Sheikh Tahnoon bin Zayed Al Nahyan is a powerful royal, and has in recent years taken on a more prominent role to spearhead the emirate's political and economic goals.

After a period of higher crude prices, Abu Dhabi is keen to use its oil windfall to transform the city's financial sector, which has lagged many of its other key industries such as energy, tourism and logistics. Such an attempt would represent a step beyond the moves other wealthy Gulf nations have made to take minority stakes in firms like Barclays Plc and Credit Suisse Group AG.

Shares of Standard Chartered in London were trading up 7% at 8:45 a.m. local time after jumping as much as 9.6%. FAB was trading 0.6% lower in Abu Dhabi.

Strong Proposition

FAB last month said it had explored a bid for Standard Chartered, but that it was no longer considering an offer. The British bank's relatively small market value - about $24 billion compared with FAB's $43 billion - and the lure of a business with exposure to some of the world's fastest growing economies make it a strong proposition for the Abu Dhabi lender. The drop in British pound also adds to the attractiveness of the bank that trades at just 0.56 times its book value.

Wall Street veteran Ken Moelis is working closely with FAB executives, key members of Abu Dhabi's ruling family and some of the emirate's sovereign funds on a possible transaction, the people said. Other bankers working on the plans are frequently shuttling between New York and the UAE capital, one of the people said.

Still, getting a deal done would be complicated and ambitious given the hurdles and the differences in the scale of the two banks. Regulatory approvals and compliance are seen as the biggest obstacles to a successful acquisition, the people said. FAB would need approval from the US Treasury to run Standard Chartered's dollar clearing license, for example, one of the people said.

Under one scenario being considered, Standard Chartered could be delisted from exchanges in Hong Kong and London and the merged bank's headquarters could be shifted to Abu Dhabi from the UK capital, the people said. Such a move is likely to face strong opposition in Standard Chartered's home market, they said.

FAB's exploration of such a deal shows the growing ambition of Middle East lenders and the wealthy oil-rich nations that back them. A successful outcome would catapult FAB into an emerging markets banking giant with more than $1 trillion in assets - and likely into the club of 30 banks that global regulators consider systemically important. It would also mark a turning point in Chief Executive Officer Hana Al Rostamani's two-year reign.

A representative for FAB referred to its Jan. 5 statement which said it had evaluated a possible offer for Standard Chartered but was no longer doing so, and said the bank is bound by takeover rules in the UK and Hong Kong. A representative for Standard Chartered declined to comment.

'Greater Legitimacy'

"FAB and the royal family are simply responding to global finance trends and the swelling amounts of capital in the Middle East," said Mark Williams, a professor at Boston University and a former Federal Reserve Bank examiner. "The state's goal of acquiring a reputable multinational bank is also linked to a desire to gain greater legitimacy in global financial circles while strengthening control over the storage and movement of funds."

As well as continuing to pursue either a majority stake or minority holding in Standard Chartered, FAB is also looking at acquiring specific assets from the British lender or forming a joint venture to help it expand internationally, some of the people said. FAB is also looking at other banks, including one in Asia, and investment bankers are also pitching a number of possible targets to FAB, other people said.

For Standard Chartered, there's been open speculation over its future for years. Back in 2018, Barclays Plc was reported to be interested in a takeover. In the mid-2000s, there were suggestions that the likes of Citigroup Inc. and JPMorgan Chase & Co. were interested in buying the bank. Since Bill Winters took the helm, Standard Chartered's shares have fallen by about a third.

Though Standard Chartered is headquartered in Britain and answers primarily to UK regulators, its fate is likely to be decided thousands of miles away in Singapore. Temasek Holdings has been the company's largest shareholder for nearly two decades, giving it the biggest individual say in what happens to the bank. Executives in Abu Dhabi haven't discussed their plans with the Singaporean wealth fund, according to people with knowledge of the matter.

Representatives for Mubadala and Temasek declined to comment. A representative for Moelis didn't immediately respond to a request for comment.

Weeks after FAB confirmed its interest in Standard Chartered, Winters told the World Economic Forum gathering in Davos that it was "quite logical" for Middle Eastern banks to be interested in buying European financial institutions given their relative valuations, but that he didn't think a deal was likely.

Banks are a "protected species," making deals difficult, Winters said."This is not something we've either engaged with, or been interested in," said Winters. "The thing with Standard Chartered is we are doing very well all by ourselves. Everything is on track for us."

--With assistance from Harry Wilson, Archana Narayanan, Shaji Mathew and Nicolas Parasie.

(Updates with share moves in fifth paragraph.)

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