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FABL & RBS: Revaluation gains and other considerations

Faysal Bank Ltd (FABL) has signed an agreement to purchase 99.37% shares of RBS Pakistan Ltd (RBS) for a total consideration of EUR41mn (PkR4.298bn or PkR2.52/share of RBS). This translates into a purchase multiple of 0.57x (trailing P/B).  Recall that earlier the US$87mn (~PkR7.3bn) MCB bid for RBS did not receive regulatory approval. Subject to regulatory approvals, it is now expected that RBS will be merged into FABL in 3QCY10. As a result, FABL will emerge with the 11th largest branch network in Pakistan along with total assets of PkR257bn and deposits of PkR175bn. While we do not cover FABL explicitly, besides the potential for merger synergies going forward, we note that FABL could immediately benefit from revaluation gains of PkR3.2bn (EPS impact: PkR5.30) that will be routed through the P&L as per IFRS 3: Business Combinations. At current levels, FABL is trading at a trailing P/B of 0.67x.                 

AKD Research
16 June 2010

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