Dubai Bank Weighs Paying Sberbank Less for Turkish Lender

(Bloomberg) -- Emirates NBD PJSC is considering whether to renegotiate its offer for Sberbank PJSC’s wholly-owned Turkish unit after the lira lost more than a fifth of its value since the deal was signed, according to people familiar with the negotiations.

Dubai’s biggest lender wants to complete its acquisition of Denizbank AS but is concerned that the price set in May is too high following the slump in the currency against the dollar, the people said, asking not to be identified because the talks are private. Emirates NBD struck a deal to buy Denizbank for 14.6 billion liras, the equivalent of about $3.2 billion on May 22.

A renegotiation is one option being considered, but nothing has been decided, the people said. Representatives for Sberbank and Denizbank declined to comment. Emirates NBD is “closely monitoring” events, a spokesman said, declining to provide further details.

The terms of the purchase, which fixed the exchange rate in a corridor, meant that Emirates NBD agreed to pay a minimum of about $3.4 billion for Denizbank, according to Sberbank’s Chief Financial Officer Alexander Morozov. The value of the asset has fallen by about $800 million in dollar terms amid tensions with the U.S. and an increasingly grim economic outlook, dropping below that floor price.

Emirates NBD shares fell 1 percent to 9.50 dirhams by 11:23 a.m. in Dubai on Wednesday, after earlier gaining as much as 0.5 percent. The shares have risen 16 percent this year compared with a 16 percent decline in the exchange’s benchmark index. Denizbank climbed 0.6 percent in Istanbul.

Turkey’s highly competitive banking sector, with more than 50 lenders, is struggling as a supply of government-backed credit starts to run out. President Recep Tayyip Erdogan is pressing banks to keep extending loans at interest rates that barely make up for inflation. They have also had to restructure $17 billion in loans.

Fitch Ratings on Monday downgraded 20 Turkish lenders, including Denizbank, saying their performance, asset quality, capitalization, liquidity and funding profiles are now more likely to come under pressure due to a further depreciation of the lira, the spike in interest rates and a weaker growth outlook.

Sberbank’s executives have said they expect to close the deal by the end of this year.

A reduction in the acquisition price may no longer be sufficient for the deal to be value neutral, Jaap Meijer, an analyst at Arqaam Capital Ltd. said in a note in August. There was a mechanism in place to reduce the dollar-acquisition price in case of a depreciation of the lira, which might trigger a material adverse change clause, he said.

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