Saudi Arabia's billionaire Prince Alwaleed bin Talal Photo: FAYEZ NURELDINEAFPGetty Images

Saudi billionaire Prince Alwaleed bin Talal will buy about half of Credit Agricole SA’s stake in Banque Saudi Fransi, in a deal valued at $1.54 billion, after the French lender initially sought a full disposal.

Alwaleed signed an agreement through Kingdom Holding to buy 195.3 million Saudi Fransi shares at 29.5 riyals each ($7.87), according to a statement on the Saudi stock exchange Tuesday, an 11 percent discount to Monday’s closing price of 32.99 riyals.

The deal, expected to close this year, will give Kingdom a 16.2 percent stake in Fransi, making Alwaleed the biggest single investor in Saudi Arabia’s fifth largest lender.

International banks are grappling with how to approach the Middle East’s biggest economy, which is embarking on an unprecedented diversification and privatisation plan, and blocks foreign control of local lenders. HSBC Holdings Plc and Royal Bank of Scotland Group Plc’s Saudi Arabia ventures are exploring a potential merger to create the kingdom’s third-largest lender with $78 billion in assets. RBS has for years tried unsuccessfully to sell its 40 percent stake in Alawwal Bank.

The disposal will lift Credit Agricole’s common equity Tier 1 ratio by about 20 basis points, the Paris-based bank said in a statement. The lender’s corporate and investment bank has an option to sell an additional 5 percent and is committed to keep a stake of at least 9.9 percent for a year after the deal.

Entire Stake

Credit Agricole tried for months to sell its entire 31 percent stake in Saudi Fransi as it refocused on its main markets to propel growth, people familiar with the matter said in March. The bank then discussed a partial sale of its Saudi operations with the country’s central bank, other people said in June.

“Given the current market price, Kingdom Holding appears to have got a good discount for the stake purchase and could reflect positively on their books when the sale materializes,” said Muhammad Potrik, head of research at Riyad Capital.

Kingdom, the Saudi prince’s investment firm, has held Citigroup Inc. shares since 1991, according to its website, a span that included its 98 percent plunge during the financial crisis. It also holds Apple Inc. and EBay Inc.

Credit Agricole Corporate and Investment Banking aims to “remain a strategic partner” of Saudi Arabia, Jean-Yves Hocher, the head of the unit, said in the statement. Credit Agricole CIB wants to develop its businesses in the country and grow its “direct presence” there, he said.

The purchase of Credit Agricole’s stake by “a strong local investor can only be positive for Saudi Fransi and should enable the bank and its staff to focus on operations going forward,” said Sanyalak Manibhandu, head of research at Abu Dhabi’s NBAD Securities LLC.

Shares Rise

Credit Agricole rose 0.7 percent to 15.13 euros in Paris trading by 9:07 a.m. Shares of France’s second-largest bank are up about 28 percent this year, outpacing the 6 percent gain of Europe’s 45-member STOXX 600 Banks Index. Saudi Fransi shares rose 0.94 percent to 33.3 riyals at 10:15 a.m. in Riyadh, while Kingdom gained 7 percent to 11 riyals.