Tahnoon bin Zayed al-Nahyan may not be done with Standard Chartered
2023.01.10 07:43
Tahnoon bin Zayed al-Nahyan may not be done with Standard Chartered
By Ray Johnson
Budrigannews.com – Standard Chartered (STAN.L) may not be Tahnoon bin Zayed al-Nahyan’s final destination. The $50 billion Gulf lender headed by the brother of the president of the United Arab Emirates, First Abu Dhabi Bank (FAB) (FAB.AD), disclosed last week that it had considered making a bid for the $23 billion UK-listed bank. It is not out of the question that FAB, which is owned by Mubadala’s state investment fund and is 38% owned by FAB, will attempt again given that StanChart shares are still above their pre-speculation level.
The strategy reflects, in one way, the optimism brought on by the UAE’s newly increased oil wealth. However, buying StanChart has strategic logic as well. Hong Kong, China, and other Asian nations make up half of its revenue, where a lot of Abu Dhabi’s oil goes. In the past year, the UAE has entered into a number of trade agreements with nations like India. The ability of StanChart to trade commodities matches Abu Dhabi’s desire to become a center for energy trading.
StanChart is also affordable. FAB could acquire StanChart for $30 billion, or approximately 70% of expected tangible book value, even with a 30% equity premium. Breakingviews’ calculations indicate that represents a discount of 28% compared to other lenders with an emphasis on Asia. Not bad for a bank that, according to analysts at Barclays, could achieve a tangible equity return of 10% in 2024. FAB might think it can cut StanChart’s costs in half, which account for two-thirds of its revenue.
Capital is the obvious stumbling block. The UK bank’s $253 billion of risk-weighted assets dwarf the UAE bank’s $158 billion, and StanChart’s balance sheet is three times larger than FAB’s $300 billion. After 2008, global regulations penalize banks for being larger and more complicated. As a result, the group may be required to hold additional capital equal to 0.5 percent to 1% of risk-weighted assets. Breakingviews’ calculations indicate a potential rise of $2 billion to $4 billion.
This might be too much trouble for Tahnoon. After all, he would have to convince Singapore’s Temasek, which holds 16% of StanChart, to accept what would likely be an all-share merger in which FAB would hold 62% of the combined entity. Additionally, Temasek might be reluctant to support a potential rights issue for $4 billion to close a funding gap. The structure of StanChart’s national fiefdoms may make cost reduction, regulatory approval, and even capital expenditure more difficult.
Having said that, Mubadala might be able to increase its stake in the UAE by using some of the increased $125 billion in net oil export revenues in 2022. In addition, Tahnoon’s other position as chair of IHC (IHC.AD), a company in the United Arab Emirates whose valuation has risen to $240 billion in double-quick time, suggests a man in a hurry. StanChart, or at least some of it, is not out of the question for a second bet.
On January 5, First Abu Dhabi Bank (FAB) stated that it had considered making a bid for Standard Chartered, which is listed in London, but decided against it.
Bloomberg had previously reported that FAB was looking into making an offer for Standard Chartered as part of a plan to build an emerging markets bank. This led to a 20% increase in StanChart’s stock price.
“The very early stages of evaluating a possible offer,” the Abu Dhabi lender stated.
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On January 10, StanChart shares were trading at 685 pence at 10:35 GMT, up from 662 pence prior to the Bloomberg report.
