Best bank in the Middle East
Last year’s decision to give QNB the regional award for best bank marked a changing of the guard in the Middle East. QNB had proven itself to be much more than a natural gas-fuelled domestic powerhouse with a few peripheral offices. It had developed critical mass in a host of jurisdictions in the Middle East and was rolling out a clear plan for expansion, and a profitable one at that.
QNB retains the award this year for continuing to do everything that it was applauded for last year, with steadily greater success. Group net profit, already by a distance the biggest in the region, grew 10.3% year on year to QR10.5 billion ($2.9 billon) in 2014. Total assets passed QR500 billion in the first quarter of 2015, while every other metric that matters – net loans and advances, total customer deposits, earnings per share, shareholder equity – moved strongly in the right direction.
Clearly, QNB leads in Qatar – so it should, being half owned by the Qatar Investment Authority and with a very clear line into the state’s enormously powerful institutional clients. But it’s the international expansion of recent years that bags it this award.
Rather than just building offices and growing organically on the back of an internationally active Qatari client base, the pattern has been to buy into an existing enterprise and take advantage of the deep roots that come with it. Probably the most well-known example is in Egypt, where QNB holds 97.12% of what is now known as QNB Al Ahli – not just a foothold, or a sales office, but the second-largest private sector bank in Egypt, a bold move in a country that was in a state of considerable turmoil when the deal originally went through in 2013, but which is now showing signs of recovery.
One sees the same strategy underway in QNB’s 35% stake in Jordan’s Housing Bank for Trade and Finance, 40% of Commercial Bank International in the UAE, 99.96% of QNB Tunisia, 51% of Mansour Bank in Iraq, and 49% of Bank of Commerce and Development in Libya. There’s also a controlling stake in a Syrian institution – and, further afield, stakes in Indonesia and most recently increasing its stake in Ecobank, the pan-African lender, to 23.5%, to take advantage of flows from the Middle East to QNB’s other markets, which include a China representative office and an Indian subsidiary. All told, the QNB group is now active in 27 countries.
It is because of this on-the-ground, committed approach to expansion that we can dismiss the usual argument against QNB – that it gets all its mandates from the state and has advantages that no regional peer is blessed with. It’s true that Arab Bank, domiciled in Jordan, or Bank Audi, in Lebanon, or even Ahli United Bank in Bahrain, have to work a whole lot harder for their dollars than QNB does, since none of them are from countries with a huge wealth of resources to generate activity. But that’s hardly QNB’s fault, and it has approached the region with ambition and dedication. No institution that takes big stakes in Libyan and Iraqi institutions can be accused of settling for the easy money.
What’s missing? If anything, QNB lacks scale in other Gulf states, notably Saudi Arabia. It will be interesting to see if increased openness in the Saudi equity market extends to letting big regional banks do more in the kingdom, as QNB certainly has the heft to make a decent play if it’s allowed in.
Best investment bank in the Middle East
HSBC, meanwhile, is always a dominant player in debt capital markets in this region, and this year it stood out for its exceptional performance across investment-banking products. It’s no surprise to see it topping the league tables in regional bonds and sukuk; that’s the norm. But it also led equity capital markets league tables and made a very strong showing in M&A too.
HSBC’s strength starts from its entrenched, on-the-ground presence in a region that has, so far at least, survived the business-selling and cost-stripping exercises of HSBC’s head office (importantly, the trimming has left the sukuk rather than retail parts of the Islamic finance operations intact, for example).
It’s not just that HSBC appears on the biggest deals. Its league table strength is supported by what’s happening in the background: a locally based DCM transaction management and documentation team, excellent equity research and distribution, and a strongly resourced project finance team based permanently in Dubai and Saudi Arabia.
So as well as being on the big DCM trades – for issuers like Etisalat, Emirates Airlines, the governments of Dubai and Sharjah – HSBC shows up on Basel III-compliant bank capital transactions, export-credit agency-wrapped deals, deals for debut issuers, and much more.
In ECM, it might be tempting to say HSBC’s dominance of the league tables was because it was the only non-regional bank on the $6 billion IPO of NCB. But even if you discount this, HSBC has advised on six other deals in the awards period, across multiple jurisdictions.
M&A is the only sub-category of investment banking that HSBC doesn’t win at a regional level, but even here, it was a candidate, with deals across the region. It advised Qatar Airways on its acquisition of a 9.99% shareholding in IAG (the owner of British Airways) for $1.7 billon. In Kuwait, it advised Jazeera Airways on the $507 million sale of 15 aircraft from a leasing subsidiary to a joint venture of Hong Kong’s Chow Tai Fook Enterprises and South Africa’s Investec. In Dubai, it advised shareholders of NPS, a local oil-field services company, on the $500 million sale of the firm to a consortium of buyers including Dubai-based Fajr Capital. And in real estate, it was the buy-side adviser on the Qatar Investment Authority’s joint bid for Songbird Estates, owner of London’s Canary Wharf, alongside Brookfield Property Partners.
It is rare in any regional category to be able to say that the award could not have gone anywhere else, but this year HSBC was in a class of its own. In the Middle East, this was possibly its strongest across-the-board showing yet.
Best debt house in the Middle East
In debt capital markets, HSBC is well ahead of any international peer. And if any bank could challenge it for the regional debt award, it could be National Bank of Abu Dhabi, rather than an American or European powerhouse. That may happen in the future, but for now HSBC retains its dominance against both local and international banks.
The 37 regional bonds and sukuk that HSBC led in the awards period, worth $6.3 billion between them, according to Dealogic, were notable for their variety. Some were just big, such as Saudi Electricity Company’s dual-tranche $2.5 billion sukuk. Some were big and innovative, like Etisalat’s debut multi-tranche €3.1 billion bond, according to HSBC the largest-ever corporate issuance in the Middle East.
Some of HSBC’s deals set new benchmarks, like the $750 million sukuk from the government of Sharjah, which broke new ground by debuting with a 10-year deal, or a $913 million sukuk from Emirates Airlines, the first sukuk to be guaranteed by an export credit agency (from the UK, in this case). The government of Dubai’s $750 million deal was in addition the first 15-year sukuk globally; deals for Emirates NBD in Australian dollars and euros showed diversity in currency. Issuance by the Islamic Development Bank, Commercial Bank of Qatar, Flydubai and Sharjah Islamic Bank show the geographical and sector range of HSBC’s clients.
On top of all that, HSBC was on top of the innovation in Gulf DCM that is being driven in particular by Basel III, which presents some quirks of interpretation in some markets in the region. HSBC acted notably on a $500 million Reg S tier-1 sukuk for Al Hilal Bank, and a deal of the same size for Kuwait’s Burgan Bank, the first bank capital transaction from a Kuwaiti issuer, according to HSBC.
It’s worth remarking, too, that HSBC is one of the leading syndicated loan houses in the region, and that it is strongly supported too, by the bank’s distribution platform. It’s a strong operation all the way through.
Best equity house in the Middle East
In the equity markets, HSBC was on the landmark deal of the year – and plenty else besides. The $6 billion IPO of Saudi Arabia’s NCB, the second-largest IPO in the world in 2014, was the headline event. But HSBC’s presence on important listings was much more widespread than that.
The NCB deal was the largest IPO from the Middle East to date, demonstrating the remarkable domestic capacity of the Saudi market. Even at $6 billion, it was 23 times covered, with a total order book of $83 billion. That might suggest an underpriced IPO, but one has to understand that listings serve a somewhat specific purpose in Saudi, and are partly intended as a method of distributing wealth among the population.
Among HSBC’s other deals, the Dubai Parks and Resorts IPO raised $700 million – another hugely oversubscribed deal despite a backdrop of falling oil prices. The $185 million share offering and dual listing of Orascom Construction on the Egypt stock market and Nasdaq Dubai was a much smaller deal, but in some ways more significant, going through at a time of considerable uncertainty in Egypt and representing a regional dual listing structure we may well see more of.
Also in equity, the $1.6 billion IPO of Emaar Malls Group – another HSBC deal – was the largest ever on Dubai Financial Market, and in the long run will be remembered regionally for its execution via a bookbuilding process. And DP World’s $1 billion convertible was the largest such structure in the region since 2008, according to HSBC, with the highest-ever premium achieved in the region.
As with debt, the detail in the background is important, with an entrenched on-the-ground ECM team, highly ranked distribution and research, and the links to HSBC’s market-leading custodial services. It is the only international bank with membership of numerous Middle Eastern exchanges (five, including Saudi and Egypt alongside the UAE exchanges) and it provides access to 14 MENA markets.
Best M&A house in the Middle East
In contrast M&A was a particularly well-contested category, with a number of potential winners. Bank of America Merrill Lynch, JPMorgan, HSBC, Barclays, Deutsche Bank, Morgan Stanley and Rothschild all found success in the region, but Citi wins for the regional variety, preponderance of buy-side mandates and the significance of the deals it was involved in.
Citi’s biggest deal was the Qatar Investment Authority’s joint Canary Wharf acquisition alongside Brookfield Property Partners, in a deal that valued Songbird at about £2.6 billion. The QIA is no stranger to iconic London real estate, but given ownership structures, this was a complicated deal. Songbird’s shareholder register was dominated by the China Investment Corporation, Morgan Stanley, the New York-based Glick family, and the QIA itself.
The $2.6 billion purchase in Dubai of Economic Zones World, by DP World, from Port and Free Zone World, was also notable for its size. As a deal between related state-owned parties – DP World runs Dubai’s ports and is building a global portfolio of others, EZW owns the local Jebel Ali Free Zone – it streamlines the corporate structure of Dubai’s infrastructure investments, with advice from Citi.
Citi further advised on Saudi Aramco’s purchase of 28.4% of S-Oil Corporation, a Korea-listed refinancing and petrochemical company, for W1.983 billion ($1.96 billion). This was striking as a cross-border deal from Saudi to Asia. Aramco already had a 30% stake in the business, so the significance of the increase was that it gives Aramco comtrol. Citi advised Aramco.
Another fascinating deal involved M1 Fashion, part of the Lebanon-based M1 Group, owned by the Lebanese Mikati family, teaming up with L Capital Asia to buy Pepe Jeans Group from Torreal, Arta Capital and L Capital Europe. Again, the notable part of the deal is a Middle Eastern business buying elsewhere in the world, in this case a highly established European fashion company that is present in more than 70 countries. Citi advised the buyers. And in Israel, Citi advised Bright Food Group from China on its acquisition of a controlling stake in Tnuva, Israel’s largest food company.
Best risk advisor in the Middle East
In risk advisory, this is an environment in which the award should go to an institution known for prudence as much as innovation. That makes it, like the flow and transaction services categories, pretty much a straight shoot-out between HSBC, Citi and Standard Chartered (Deutsche Bank has had a tougher year after being fined by the Dubai Financial Services Authority in April, in part for providing inadequate protections to clients). Standard Chartered stands out for its structuring expertise and for its pre-eminent Islamic banking operation, which is increasingly important in the region.
Standard Chartered’s strength in the area spans from having the largest dealing room in the Middle East – run from its regional head office, which occupies an entire building of the Dubai International Financial Centre. It counts 143 employees in financial markets there, of whom 50 are in trading, structuring and ALM. As a consequence of this scale, it says it is the largest liquidity provider in the interbank market regionally.
In terms of structuring, Standard Chartered’s capabilities cover the region’s needs, both Islamic and conventional. It claims the largest market share in regional currencies, interest-rate swaps and derivatives, and says it executed local-currency interest-rate derivatives trades with a notional amount of over $60 billion in the interbank market during the awards period.
How does this all work for the client? As examples, Standard Chartered highlights arrangements to enhance yield and reduce foreign exchange costs for corporate clients in Saudi Arabia, and an arrangement to help a regional bank monetize a relatively illiquid local-currency government bond portfolio, among other risk solutions.
Best flow house in the Middle East
Standard Chartered’s large dealing room also underpins its title of best flow house. It claims a dominant market share in regional currencies, interest-rate swaps and derivatives, and continues to hold a top-three position in Euromoney’s annual foreign exchange survey.
In foreign exchange, Standard Chartered claims annual volumes in excess of $600 billion, including currencies such as the Kuwaiti dinar, Omani riyal, Bahraini dinar and Saudi riyal, as befits a bank that has been present in the Gulf got more than 90 years. On rates, it also performs at the very top level, seeing 51% year-on-year growth in local-currency interest-rate derivative trading.
Standard Chartered believes it is instrumental in developing the Middle East’s local markets. Its traders run bond-trading books within the region that help to develop smaller local-currency products. But in the bigger-volume areas, the bank’s G10 swaps and bonds trading team is a key liquidity provider; in dollar interest-rate swaps, it says trading volumes hit about $300 billion in the interbank and treasury market during in the awards review period.
It’s also worth noting Standard Chartered’s expertise in commodity derivatives, from energy to metals and soft commodities, while a research team – Standard Chartered’s head economist globally is in Dubai – further supports the group.
Best transaction services house in the Middle East
Finally, in transaction services, HSBC has an impressive offering across the board, from cash management to trade finance, security services and custody. But if you just wanted one differentiator to explain this award, consider how HSBC is positioned as Saudi Arabia’s equity market opens up. Its provision of local custody services in Saudi Arabia is going to be a colossal advantage as the kingdom begins to embrace international capital, since custody and settlement are going to be among the most challenging aspects of the whole endeavour.
That apart, HSBC is among the very best anyway. Payments and cash management is going against the grain at HSBC these days, in that the money being deployed to the business is being increased, not reduced. This business within the Middle East is exceptionally well-resourced and continues to demonstrate innovation and improvement, such as its remote-deposit capture system, and the auto-convert foreign exchange product it has launched in the UAE.
HSBC has long been a trade and receivable finance leader, operating in eight markets in the Middle East plus Saudi through SABB, linking into more than 60 other markets worldwide. And in securities services, it says its sub-custodian teams are bigger than those of all of its competition combined. Assets under custody grew over 12% last year across the region, and the bank benefited from the accession of UAE and Qatar to MSCI’s emerging market indices, taking full advantage of increased turnover in those markets.
