In a Middle East experiencing a resurgence of democracy, and for banks in the region too, the past year was the best of times and the worst of times. On the one hand there were the markets most adversely affected by the Arab Spring, such as Egypt, Bahrain and, most drastically, Syria. In these countries, the regional political turmoil is having a negative effect on banking-sector growth and stability, at least in the short term. On the other hand, there are those markets, such as Saudi Arabia and Oman, where higher government spending – in part prompted by regional political pressures – sparked renewed growth in the banking sector. This was at a time, more–over, when many banks had cleared their books of 2008-era bad debt. In hydrocarbon-rich countries – particularly Saudi Arabia but also Qatar – energy prices, which were high as a result of regional politics, benefited banks via both higher government spending and greater confidence. Dubai benefited too from the regional instability as it reasserted its status as the regional safe haven for tourists and business people. Kuwait’s state finances also gained from high oil prices. But banks in Kuwait continued to suffer from the struggle between government and opposition and the attendant delays to reform. The lingering trouble at overleveraged Kuwaiti corporates and investment companies, which were still recovering from the 2008 property and stock crashes, also weighed on the banks. Considering the local difficulties, National Bank of Kuwait, the winner of the regional best bank award in 2011 and 2010, did well to grow assets, albeit in the low single digits. To its credit, it also maintained profits at roughly the same level for the 2011 financial year and the first quarter of 2012. NBK is doing particularly well in Qatar, where NBK veteran George Nasra has led the local unit, International Bank of Qatar, to achieve the second-highest profit growth of any Qatari bank save the national champion, QNB. However, profit in 2011 halved at NBK’s Egypt operation, its biggest balance-sheet exposure outside Kuwait, although investment in technology and other areas should mean this business does well over the longer term too.
Best Bank AUB’s return on equity for 2011 increased to almost 13%, compared with less than 5%, for example, at fellow regional lender Arab Bank. Over the year, AUB furthermore cautiously decreased its reliance on interbank funding. It signed a $500 million deal for preference shares and subordinated debt with the International Finance Corporation, the private-sector arm of the World Bank. AUB’s absolute profit is not as big as NBK’s. But it arguably has greater geographic diversification in the Middle East than any other bank in the region. Thanks to operations from Kuwait and Qatar to Iraq, Egypt and beyond, AUB’s operation in Bahrain accounts for only 20% of its group assets. AUB performed very well even compared with the competition, for example, in Oman: a market of growing interest for banks. But the bank also managed to grow profits in Egypt last year. This ability to perform well despite the circumstances – across regional markets that are either booming or struggling – deserves recognition.
Best Investment Bank Citi is one of the few investment banks with a good geographic as well as product spread. It also has rare momentum: during the period, it rose from 13th to sixth place in the M&A league table and from sixth to third place in the DCM league table, according to Dealogic. Citi’s bond deals in the Middle East stretched across sovereigns, corporates and financial institutions, and across the Gulf and beyond. Its deals impressed both for size (such as the $5 billion Qatar bond) and innovation (for example, First Gulf Bank’s wakala-mudaraba sukuk last July). Citi boasts important deals in equity (such as the dual listing in London of Dubai ports operator DP World last July) and M&A (such as the $1.9 billion purchase of a 24.9% stake in Malaysian lender RHB Capital by Abu Dhabi sovereign investment vehicle Aabar last October). Citi is still disadvantaged because of its lack of on-the-ground presence in Saudi Arabia. But that is perhaps no fault of its present management, certainly within the region. Also, its lack of a presence in Saudi Arabia is made up for with leadership among the internationals in such countries as Egypt, Israel and even Iraq. Overall, Citi has benefited from an investment banking environment where the ability to provide creative financing increasingly means the difference between success and failure, including in hedging and derivative products. Citi also stood out in the context of challenges in the corporate sector specific to Egypt and Dubai. For example, the bank arranged and hedged a $325 million structured financing for private equity firm Citadel Capital in Egypt, right at the height of the political turmoil. The deal included $150 million in new debt guaranteed by US development finance institution Opic. Citi also coordinated a $2.2 billion debt restructuring at Orascom Construction Industries in Egypt. This paved the way for a demerger with Orascom’s fertilizer business. In Dubai, Citi was behind a $1.15 billion oversubscribed syndicated refinancing for Dubai’s Ports & Free Zone World, the holding company for DP World. It was also sole structuring bank and mandated lead arranger in the first toll-road financing in the Middle East, in Dubai. The deal also included an Islamic securitization.
Best Debt House Last year, in terms of deal volume, HSBC’s market share was less than 50% larger than that of its nearest rival, Standard Chartered. This year, however, HSBC’s market share in DCM was almost three times as large as its nearest rival (again Standard Chartered). This was largely attributable to success in the sukuk market in Saudi Arabia, which, in the first quarter, for the first time became the most important DCM issuing market in the region. The success of Saudi issuers in the first quarter largely rested on the Kingdom’s first-ever government-guaranteed sukuk early in the first quarter. The latter was from the General Authority for Civil Aviation. HSBC was the sole bookrunner. The GACA sukuk set an important new benchmark for sukuk from the Kingdom and was followed by a string of other deals, also arranged by HSBC. However, HSBC’s franchise outside Saudi Arabia is also strong. It was one of the bookrunners on Qatar’s $5 billion deal. It was also the only bank to have been involved in the last two consecutive issuances by the Dubai government. HSBC was also one of the banks behind the first offshore renminbi deal in the region, a Rmb1 billion ($157 million) deal for Dubai bank Emirates NBD.
Best Equity House
Overall, however, the 12 months to the end of March 2012 were still lacklustre in the Middle East, with slightly greater volume from slightly fewer deals than in the previous year. In that context, HSBC’s equity markets franchise looks even more resilient, printing a far higher number of deals than any other bank, as well as a variety of types of deals in different geographies. Among HSBC’s deals was the IPO of United Electronics Company in Saudi Arabia. It was also sole lead manager on the $110 million rights issue of Qatari conglomerate Mannai, funding Mannai’s 35% acquisition of UAE telecoms firm Axiom. It advised on DP World’s dual listing in London. It was also bookrunner on the $225 million rights issue for UAE-based but London-listed oil and gas firm Lamprell, another acquisition financing. Overall, M&A volume in the 12 months was roughly half the amount in the previous period. Regional buyers taking stakes in firms elsewhere in the world once again dominated what M&A activity did take place. And again, the main buyers here were primarily state-linked firms from Qatar and Abu Dhabi.
Best M&A House Goldman Sachs was active on both of the main outbound deals from Gulf buyers during the period – from state-linked buyers in Abu Dhabi. By far the biggest deal of the year involved International Petroleum Investments Company buying a 52% stake in Spanish energy firm Cepsa, for $7.6 billion. Goldman Sachs advised Ipic. Goldman Sachs also advised on the purchase of the 25% stake in RHB Capital by Aabar, a subsidiary of Ipic. Elsewhere, in Egypt, Goldman Sachs advised on an $800 million additional investment in Orascom Telecom by members of the shareholding family. It also advised Israel’s Teva Pharmaceuticals on the $934 million acquisition of Japanese pharmaceutical firm Taiyo. Goldman also advised the Malaysian sovereign wealth fund on its acquisition from Dubai private equity firm Abraaj of a $1.7 billion, 50% stake in Acibadem, a Turkish healthcare firm.
Best Project Finance House During the period, HSBC was adviser to the Muharraq waste-water project in Bahrain, the first waste-water public-private partnership in Bahrain, and closing at a difficult time for the country. In Abu Dhabi, it was financial adviser, mandated lead arranger and hedging bank to the Shuweihat S3 independent power project (IPP), HSBC’s ninth consecutive mandate for the Abu Dhabi Water and Electricity Authority. In Saudi Arabia, HSBC was also hedging bank and mandated lead arranger on the Qurayyah IPP, as well as arranger on the Ma’aden mining and aluminium project. In Qatar, HSBC was arranger on the Barzan gas project, one of Euromoney’s deals of the year for 2011.
Best Risk Adviser Last year’s winner in risk management, HSBC, has taken innovative steps to meet that demand over the course of the year. It launched an Energy Solutions Group to help clients manage their energy exposures and has been involved in deals including a seven-year Shariah-compliant dollar-Indonesian rupee call spread for a Saudi client and a Shariah-compliant cross-currency reverse repo transaction with a Qatari Islamic institution. Standard Chartered can also point to a number of notable deals, including a $200 million, 10-year dollar-ringgit cross-currency swap for a company in the UAE. However, it is Deutsche Bank that has impressed the most. It has extended repo financing to dozens of banks and asset managers on collateral that many others in the region would have shied away from. It has also developed solutions that enabled clients to raise large amounts of capital against assets that local lenders would not accept. Among the key deals it has been involved in were providing $750 million of hedges to a Saudi company, arranging the first Shariah-compliant enhanced repo for a Gulf bank and arranging $50 million of three-year debt for a Kuwaiti group backed by its equity holdings. It also helped a Lebanese client raise more debt than was available in the local loan market for a buyout of a regional insurance group by identifying trapped cash and assets held by the company’s subsidiaries.
Best Flow House Other banks have presented strong competition in certain areas, such as Standard Chartered, which had an impressive record in FX transactions over the year and added Egypt and Kuwait bond trading to its offering. It can also claim a cross-currency swap record, with a $35 million ticket executed in Jordanian dinars, the largest ever such deal in that currency. However, the award this year goes to HSBC, which has made big strides across the board. It traded more than QR1.8 billion ($500 million) of local Qatari government bonds during the awards period and carried out more than $35 billion-worth of derivatives trades, of which almost a quarter were in local currencies. The bank also took advantage of its on-the-ground presence when it launched a retail bond platform through its branches in the UAE, Bahrain and Qatar, giving access to the regional bonds market for both retail and high-net-worth customers.
Best Cash Management House One bank consistently outperforms its rivals in cash management in the Middle East. HSBC topped the polls for regional transactions in euro, dollar, sterling and yen in the 2011 Euromoney cash management survey. It was also voted the best in the global survey. Over the past year HSBC has been consolidating its position in the market. During the award period, it won 1,422 new deals with a combined value of more than $60 million and launched renminbi services in the UAE in July 2011. It now has some 10,322 actively managed cash-management clients in the Middle East and North Africa region. On March 29, just two days before the awards period came to a close, the bank announced that it was buying the onshore retail and commercial banking business of Lloyds Banking Group in the UAE, including its payments and cash management business. That deal involves assets worth $769 million and is expected to close later this year, subject to regulatory approval, adding to HSBC’s already powerful position in the market. Notwithstanding that strong position, HSBC is likely to find itself facing tougher competition in the region. Standard Chartered and Citi can both point to good growth figures and JPMorgan is worth keeping a close eye on. The bank opened new offices in Abu Dhabi and Qatar over the past year and it has had a full-service onshore branch in Saudi Arabia since November 2011. |
