Two Saudi banks soared on Wednesday after saying they were in the initial stages of a merger, helping lift the mood in other lenders.
Alawwal Bank agreed to start talks with Saudi British Bank (SABB) about a tie-up that could create the Kingdom’s third-biggest bank with assets of nearly $80 billion.
Shares in Alawwal soared by 8.6 percent in their heaviest daily traded volume since May 2012 while SABB jumped 6.8 percent in the largest single-day volume since November last year.
“While the merger, if it goes through, is good news for both lenders, Alawwal will benefit more from the tie up due to reduced operating cost,” said Mohammad Al-Shammasi, chief executive of the Riyadh-based Derayah Financials.
Other analysts said that currently the price-to-book ratio of both lenders, a common measure used to determine the relative value of banks, is low and that a merger will help drive up the value of the combined entity.
The positive mood spilled into other banking shares, with mid-sized Saudi Investment Bank (SIB) gaining 2 percent.
Yanbu National Petrochemical (Yansab), however, dropped 4.3 percent to SR55.75 ($14.87) after reporting a net income of SR608 million ($162.1 million), below the average forecast of three analysts of SR635.82 million, and up 44.2 percent from the prior year period.
“We believe lower than expected operating rates and higher operating expenses were offset by gross margin expansion. Operating rates... lower than our estimate mainly due to preparation for shutdown in the second quarter of 2017,” said a note by Riyadh-based NCB Capital.
Improving petrochemical prices, strong balance sheet and an attractive dividend yield of around 5 percent are the key strengths of the stocks, NCB Capital added.
Most other petrochemical producers have not yet reported earnings as authorities have granted companies an additional 15 days to report earnings since they are converting to International Financial Reporting Standards (IFRS). The Saudi index closed flat.
Elsewhere, shares of the UAE’s largest listed company, telecommunications operator Etisalat, added 1.1 percent after the company reported a 4.5 percent rise in first-quarter net income from the prior year period to 2.09 billion dirhams, broadly in line with analysts’ forecasts.
The Abu Dhabi index, however, lost 0.5 percent with the main drag from profit taking on shares of the largest lender First Abu Dhabi Bank, which dropped 2.2 percent.
Shares of energy company Abu Dhabi National Energy (TAQA), which had dropped as much as 6.7 percent earlier in the day on news that rating agency Standard & Poor’s (S&P) had downgraded its credit rating to “A-“ from “A” and gave it a “negative” outlook from “stable,” closed flat.
S&P said the downgrade came as a result of “recent related-party transactions at TAQA,” which raises “potential risks to our view of the level of government support.”
Earlier this month, state-owned utility company, Adewa, increased its stake in loss-making TAQA, days after it granted the energy company land valued at $5.1 billion.
In Dubai, 26 shares rose, nine declined and the index added 0.2 percent. Financially troubled builders Arabtec and Drake & Scull were some of the top gainers with the former adding 4.2 percent and the latter jumping 2.1 percent.
The largest listed developer, Emaar Properties, however, fell 0.6 percent as its shares traded ex-dividend on Wednesday.
Doha’s index rose 0.5 percent, coming slightly off the previous session's four-month low.
Egypt’s index, which was shut for a holiday on Tuesday, added 0.7 percent, taking cues from other emerging markets.

Source: Arab News