BankMuscat Board approves AED 2.27bn (USD 619 mn) Dubai Group proposal to take 15 per cent stake

This is the single largest cross border investment in the banking sector in the region. Dubai Group is a member of Dubai Holding.

This proposed transaction is subject to necessary approvals from the regulatory authorities and the shareholders of the Bank. The shareholders will be invited to Extraordinary General Meeting to discuss and approve the proposed private placement. The deal is expected to be completed before the end of this year.

Speaking on the occasion, Sheikh AbdulMalik bin Abdullah Al Khalili, Chairman, BankMuscat SAOG said: "To lend further momentum to our ambitious growth plans, BankMuscat has periodically looked at innovative ways to raise capital. This time is no exception. We have considered the various options open to us and found the private placement route to be the most suitable. We found the offer from Dubai Financial Group to be the most rewarding for stakeholders: not only in terms of the premiums quoted, but also in terms of synergies in cultural beliefs and the importance of long-term value creation.

"Dubai today is in many ways the torchbearer of the Middle East in terms of the rapid strides it has taken toward integration with the global economy. This partnership will allow us to marry the tradition, culture and strong economic roots of Oman borne out of the visionary leadership of His Majesty Sultan Qaboos bin Said, with the business prowess of Dubai."

Dubai Financial Group is the financial services holding company for Dubai Group. Dubai Financial Group's strategy is to participate in global and regional institutions for the long term and focuses on aligning itself with the management to create significant value for all stakeholders.

Mohammed Al Gergawi, Executive Chairman, Dubai Holding commented on the significance of the deal: "We are very pleased with this investment as it is an important step in cementing the strategic economic partnership between UAE and Oman. This comes at the right time as both the Dubai and Oman economies diversify rapidly and gain momentum in terms of growth and opportunities."

He added: "Since its inception, Dubai Holding has worked to adopt initiatives and projects that will contribute to and strengthen economic relations between the United Arab Emirates and all countries in the region, through partnerships and strategic investments in several sectors. This is the second investment project for Dubai Holding in the Sultanate of Oman. The beginning of our cooperation with the Sultanate was through Sama Dubai, a member of Dubai Holding that specializes in real estate development, which in 2005 launched a multi-use real estate project in the Yiti region. We are currently examining the possibilities of future investment projects in the Sultanate."

Commenting on their decision to invest in BankMuscat, Soud Ba'alawy, Executive Chairman, Dubai Group said: "Dubai Financial Group has always believed in following a 'value-added approach' to its investments. This includes identifying companies where we believe have a strong long-term growth potential and where we can add substantial value as a partner.

"We believe BankMuscat is at an extremely interesting point in its growth curve, with the domestic Omani economy rapidly diversifying and gaining momentum in terms of growth. We believe in the strength of the management at BankMuscat and will work with them to grow rapidly in the region."

The highlights of the private placement are as follows:

• BankMuscat will issue 161.57mn ordinary equity shares to Dubai Financial Group LLC through a private placement as per Article 83 of the Commercial Companies Law. This represents 15% of the capital of BankMuscat post the private placement.
• The price of a BankMuscat share that would be issued under the above private placement would be RO 1.475 per share. The total consideration for the private placement would be AED 2.27 bn (USD 619 mn).
• Dubai Financial Group would nominate two directors into the Board of BankMuscat subject to the regulations of the Commercial Companies Law.
• The private placement would be subject to the parties entering into a subscription agreement and to approval of the Central Bank of Oman, Capital Market Authority and the shareholders of BankMuscat in an EGM.

"This private placement will result in a substantial increase in the net worth of the Bank. We intend to use these funds to support the overall asset growth and expansion plans of the Bank both in the domestic market and overseas. The funds will also help us further strengthen our capital adequacy position, which will go up to 18.87%, from the current 11.4% levels," Sheikh AbdulMalik added.

The Central Bank of Oman currently requires banks to maintain a capital adequacy ratio, the ratio of a bank's capital to its risk-weighted credit exposure, to be no less than 10%.

BankMuscat has just announced a net profit of AED 382.8mn (USD 104.4mn) for the half year ended June 30, 2007, as against a net profit of AED 266.7mn (USD 72.7mn) reported during the same period in 2006, thus recording an impressive growth of 43.6%. This is the second successive quarter that the Bank has turned in a record performance. The basic earnings per share on an annualised basis, which works out to 88 baizas for every 100 baiza share of the Bank.

Though subject to regulatory approvals, the transaction is expected to be complete before the end of 2007.