Traders in Dubai Stock Market. Image Credit: Gulf News Archives

Dubai: UAE shares gained Dh7.51 billion on Tuesday driven by news of a potential merger led by Abu Dhabi Commercial Bank (ADCB) with smaller banks. ADCB said it is in exploratory talks with UNB and Al Hilal Bank for a potential merger, with Bloomberg reporting that the merger could be announced as early as this month.

As a reaction to this news, ADCB and UNB shares hit their highest daily limit with robust volumes, triggering an overall recovery in total trades on the ADX. Combined market capitalisation of ADCB and UNB rose to Dh54.98 billion from Dh47.47 billion in the previous session. On Tuesday, ADCB’s market cap stood at Dh42.84 billion, while that of UNB stood at Dh12.18 billion.

“The merger, if it goes ahead, would be a positive for both the banks as well as for the UAE banking sector in general,” said Vrajesh Bhandari, portfolio manager at Al Mal Capital. “The stock of UNB is expected to gain more, given [that] it traded at very cheap valuations on account of concentrated exposures.”

ADCB shares touched a 52-week high of Dh8.15 before closing 12.84 per cent higher at Dh8. UNB’s closed at their highest level in 52 weeks, at Dh4.43 and up 14.77 per cent.

“Tuesday’s gap-up opening with pending buy orders hints [at a] further upside in UNB. The stock looks well poised to accumulate hefty gains and may open at Dh5.09 and may target Dh6.20 in the short term,” Shiv Prakash, senior analyst with First Abu Dhabi Bank Securities, said.

UNB shares, generally illiquid, had been witnessing an increase in volumes between July 25 to August 3, with total trades of 25 million shares. UNB registered a peak volume of 7 million shares on July 25. ADCB registered trades of 10 million shares — the highest since March 13, 2016.

“The reason behind the large bids on UNB is that the stock is trading significantly below its book value [BV] unlike ADCB’s, which was already trading above its BV. This could definitely be the main reason in why UNB is pushing forward harder than its peer,” Essam Kassabieh, senior financial analyst – research department at Menacorp said.

The Abu Dhabi Securities Exchange general index gained more than 1 per cent to hit the keenly-watched 5,000 level. The Dubai Financial Market general index did so at 2,837.17, up 0.27 per cent.

“Banks in Abu Dhabi will only get stronger after this and — yes — this would boost trading; as for Dubai, it isn’t clear if there are any plans for bank mergers,” Kassabieh said.