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DUBAI: Abu Dhabi Financial Group (ADFG) said on Tuesday it plans to merge with Shuaa to create a Dh2.5 billion entity in the financial services sector.

ADFG first invested in Shuaa in November 2016, and held 48.36 per cent in the company. Under the new terms of the transaction, ADFG’s shareholders will own 58 per cent of the new entity, while Shuaa’s existing shareholders will own 42 per cent in the new entity.

“We would have 12,500 clients between us to which we can cross sell to. This is revenue synergy rather than cost synergy. We expect revenue synergies, growth prospects and sustainability in coming years,” Jassim Al Seddiqi, the Chief Executive Officer of ADFG told journalists in a conference call.

“There is an integration plan that would take 12 months to finalise,” he added.

The valuation would mean a 60 per cent premium on shares of Shuaa, which values the company at Dh1.13 billion. The combined entity would manage assets of $12.8 billion. “The valuations was more than 58 per cent for ADFG and we wanted to send a positive signal to the market,” he said.

Shuaa will issue 1.47 billion new Shuaa shares to ADFG’s parent company Abu Dhabi Capital Management in return for the entire issued share capital of ADFG. The new issued shares would have a lock in period of 12 months.

Shuaa’s new capital will increase to 2.53 billion from 1.065 billion. The combined entity will remain listed on Dubai Financial Market and will be rebranded as ADFG. The swap ratio would be 58 per cent and 42 per cent for the current Shuaa shareholders. ADFG would look for acquisitions in the region.

“Having made excellent progress in turning our business around over the past three years, supported by ADFG as a major shareholder, we now see the potential to accelerate Shuaa’s growth,” Fawad Tariq Khan, CEO of Shuaa said in a statement.

The merger is expected to improve Shuaa’s earnings with increased profitability and diversification. Pro forma revenue for Shuaa would increase by 176 per cent in fiscal year 2018 and pro forma fiscal year 2018 Ebitda (earnings before taxes, interest, depreciation and amortisation) margins would improve to 38 per cent from 34 per cent.

The combined entity will remain listed on Dubai Financial Market and is expected to be rebranded as ADFG.

“The transaction is ultimately a reverse IPO which will allow ADFG to go public without concerning itself with market conditions and liquidity which would affect a traditional IPO’s success due to limited funding and interest,” said Issam Kassabieh, senior financial analyst at Menacorp.

Shuaa shares closed more than 3 per cent higher at Dh0.959 in a flat Dubai market.