While major markets around the world show signs of intense anxiety over the prospect of a US-led attack on Iraq, across most of the Middle East it is business as usual.
Gold has reached new heights as investors look for safe havens and Brent crude futures have climbed on fears that a war would raise the price of oil still further.
Meanwhile, in the Gulf, a region not famed for vast amounts of capital market activity, record deals are getting done. Kuwaiti mobile phone company MTC acquired Jordanian mobile operator Fastlink from Egypt’s Orascom in the largest-ever deal of its kind in the region, Saudi Arabia saw its first IPO in nearly 20 years, and Bahrain made a success of its $500 million debut bond issue.
Upbeat about mobiles
In late December MTC agreed to buy 91.6% of Fastlink from Orascom for $423.9 million to raise its equity interest in the Jordanian mobile phone company to 96.5%. The deal, managed by National Bank of Kuwait and EFG Hermes Investment Banking of Egypt, was also by far the largest private-sector investment in Jordan by a private company in the Gulf.
Despite the threat of another war in neighbouring Iraq, Kuwaiti bankers seem surprisingly upbeat about business in 2003. “There are a number of mobile phone licences that companies will be bidding for in the region this year,” says one. “And if the US ousts Saddam, Iraq could be the biggest of them all. It has a large population and the fixed-line network is in complete disarray,” he says. The prospect of war also failed to affect Saudi Telecom’s long-awaited IPO. On January 6, the government went ahead with the flotation of 30% of the state-run telecom monopoly. Saudi Telecom is now the second-largest company in Saudi Arabia after Sabic, the kingdom’s oil company, which listed in 1984 and was the last big IPO. The telecom deal, led by Gulf International Bank, raised SR15.3 billion ($4 billion) on the back of SR37.6 billion in demand. Two-thirds of shares were allocated to the public, and the remaining third went to two large government pension funds.
The IPO is part of the government’s slow-paced privatization programme to help reduce some SR600 billion of public-sector debt. The government has further plans to part privatize companies in 20 different sectors ranging from ports to airports and the national airline, Saudi Arabian Airlines, which BNP Paribas has been working on for the past two years. The privatization programme has moved along slowly because most large government companies have been run more like government ministries and so require substantial restructuring.
Bahrain’s Baa3/A- rated first international bond issue, managed by BNP Paribas and Citigroup, attracted an order book of $1.2 billion and succeeded in securing wide international distribution.
European investors took 27% of the book, Asian investors 20%, and US offshore 3%. The rest went to Middle East accounts. The threat of US attacks was mentioned during the roadshow but investors were far more interested in what the finance ministry wanted to use the money for.
Although there is concern in the region about the political effects an attack on Iraq might have, business confidence does not seem to have been hurt as much as might be expected given the reaction of markets in the rest of the world.
But rising stock markets and big regional deals might not be quite the indicator of confidence they appear to be. Regional markets have been buoyed by the benefits of a strong oil price and capital being redeployed in domestic stock markets after returning or staying away from disappointing US and European markets.
