The problems might ultimately lead to better practice in banks risk management and in regional corporate governance. Thanks to Dubais difficulties, closer attention has been paid to exactly when sovereign support is available. Lending against the prestige of a borrowers name has already become more difficult a vital development in a region whose economy is so dominated by family businesses.
But with oil prices holding up, the Middle Easts importance in global capital markets looked like it might grow further.
The fallout from the 18-month-old defaults in Kuwaits investment sector continues to weigh heavily on many of that countrys banks. However, the resilience and steadfastness of National Bank of Kuwait (NBK) amid the troubles is testament to the sophistication of the institution and to the solidity of its management.
NBKs regional rivals have also been hit by problems such as those of Dubai and of the Saad and Al Gosaibi groups, in some cases suffering profits down by up to one-third in 2009. In stark contrast to its main competitors, NBKs provisions fell.
NBK grew net profit by 20% in the first quarter of 2010 and by 4% in 2009 an impressive achievement given the circumstances. This was achieved even as the bank maintained its regional and local expansion, opening branches everywhere from Qatar to Iraq, and continuing to invest in technology in such areas as trade finance.
NBK continued to thrive and grow in retail, private banking and investment banking, in cash management and treasury, and in the corporate sector. In 2009 its growth in customer deposits of almost 20% and its loan growth of 12% bettered its main rivals. And it has maintained its presence in the key wholesale transactions in the region. It arranged, for example, a $2.65 billion syndicated facility to the Subiya power plant in Kuwait at the end of 2009. It was also mandated lead arranger on a $2.5 billion bridge loan to Zain Saudi Arabia in the third quarter.
HSBC stands out too for being consistent across countries and across products. Compared with Goldman Sachs and Credit Suisse, it enjoys more top-five positions in equity capital markets, debt capital markets and M&A when individual rankings are calculated for each category in each of the main markets (Bahrain, Egypt, Kuwait, Qatar, Saudi Arabia and UAE).
Credit Suisse is not a top-five player either by volume or by number of deals in either the debt or the equity capital markets. Goldman Sachs does not appear at all in the equity league table. HSBC had the highest number and the second-highest volume of deals in the debt capital markets. In loans, it had the second-highest number and the highest volume. In equity, HSBC was in the top 10, with a market share of just over 9%. It was also an important competitor in M&A, where it had four deals.
HSBC excelled for the high quality and innovation of its work, and for how it developed the markets. Last summer, for example, it acted as exclusive financial adviser to the government-sponsored steering committee overseeing the merger of Qatar Navigation and Qatar Shipping, a deal worth $1.4 billion. This was one of the biggest M&A deals of the year, and a rare example of a prominent merger of listed companies in the Middle East. It will make similar deals easier in the future.
Also in Qatar, HSBC led the biggest equity deal of the year: the $952 million IPO of Vodafone Qatar, in late spring 2009. This was the first multinational company to offer equity on the Qatari market, and it was the second largest ever IPO in Qatar.
HSBC was also bookrunner on the $750 million sukuk issued by the Kingdom of Bahrain in June 2009. This was the first dollar sukuk in a Gulf Cooperation Council state since March 2008, and one of the largest ever sukuks issued by a sovereign. HSBC was also bookrunner on National Bank of Abu Dhabis $750 million Eurobond in March the first bank issuance in the Middle East since the Dubai World standstill announcement.
In structured finance, HSBC acted as mandated lead arranger and interest-rate hedge provider for a $900 million 42-month hydrocarbons pre-export finance facility last October for state-owned Egyptian General Petroleum Corporation. This paved the way for further successful issuance by the Egyptian state in 2010.
HSBC led the multi-billion-dollar restructuring of Kuwaits Global Investment House, completed in December, with facilities in the final arrangement amounting to $1.7 billion. This was the first Middle East restructuring to be completed since the crisis began. Involving 53 banks and 50 bondholders, multiple derivative products and murabaha counterparties, the restructuring set the standard in the region for its formality and transparency.
The notable absence at the top has been JPMorgan, the best performer a year earlier in investment banking in the Middle East. JPMorgan ranked 10th for overall investment banking revenue between April 1 and March 31, according to Dealogic.
The regions debt markets have been extremely active over the past 12 months. Barclays, BNP Paribas, Goldman Sachs and JPMorgan all ranked in the top five bookrunners by volume, with roughly $4 billion each in DCM issuance, according to Dealogic. But it was Goldman Sachs that ultimately stood out in the debt award, not just for range in terms of geography and issuer type, but also for the extent to which its deals brought the market forward.
Perhaps the three most outstanding among Goldman Sachss Gulf mandates were a $500 million bond for Kuwaits Kipco, Qatars record-breaking $7 billion sovereign bond in November, and a $450 million sukuk for Saudi developer Dar Al Arkan.
The Kipco deal played a part in reopening the global debt markets for GCC issuers after the collapse of Lehman Brothers. Despite being printed as late as October, the deal was the first international private sector corporate debt issue from the region in 2009.
Qatars bond was the largest ever from the Middle East and the largest-ever emerging markets sovereign bond. Goldman Sachs helped execute Qatars $3 billion sovereign bond in April last year, which laid the foundations for the bigger issuance in November.
This Februarys Dar Al Arkan sukuk was the first Gulf debt issue of 2010, helping the GCC story after Dubais debt standstill at the end of November. It was the first Saudi corporate issuance to formally roadshow in the US.
Goldman was one of the bookrunners on GE Capitals $500 million sukuk in November. Although the client is from the US, the deal was important in making global investors familiar with sukuk, an increasingly important instrument for regional issuers. The deal came as part of GEs wider expansion strategy in the Middle East.
In the equity markets, there was about half the volume of issuance this year of either of the previous two years. In the biggest equity market, Saudi Arabia, HSBC ranks highest among the foreign banks. It has grown its research coverage there too.
However, when the whole regions equity market is taken into account, Citihas a bigger market share and did more deals than HSBC. Saudi Arabias Riyad Bank and UBS ranked higher than Citi in terms of issuance volume, but Riyad Banks issuance was restricted to Saudi Arabia, and UBSs issuance was restricted to Israel. Citi was sole bookrunner for a placement in December of part of Dubai Holdings stake in Egyptian investment bank EFG Hermes, in a deal worth $114 million. This was the first monetization by a Dubai entity after news broke on November 25 of the Dubai World debt standstill. In March, Citi was also joint bookrunner on the $800 million rights issue for Egypts Orascom Telecom, after the company decided to strengthen its balance sheet because of a tax reassessment that might affect its Algerian subsidiary. This was the largest-ever equity capital increase in Egypt and the second-largest-ever equity offering in Egypt. Citi was also sole bookrunner in one of Israels biggest equity deals of the year: the $286 million follow-on offering by telecommunications firm Bezeq.
There were rich pickings in advisory mandates in the Middle Easts mergers and acquisitions market, even if the volume of deals was well below two years earlier. Credit Suisse, Goldman Sachs and Morgan Stanley had the highest number of deals and the highest volume in M&A, according to Dealogic. But Credit Suisse has the edge in the league table, winning the biggest market share by volume. The Swiss bank is particularly strong in advising sovereign wealth funds, perhaps the key client base in M&A in the region.
Credit Suisse and Goldman Sachs, which had the second-highest volume, both advised on the biggest deal of the year by far: Qatar Holdings $10 billion investment in German carmakers Porsche and Volkswagen in August 2009. This was the biggest-ever investment in Germany by a sovereign wealth fund. But Goldman Sachss next biggest M&A deal (the $1.7 billion merger of state-owned Qatari property firms Barwa and Alaqaria) was less than half the size of Credit Suisses next biggest deal: the $3.9 billion acquisition last September of Singapore-listed Chartered Semiconductor Manufacturing by Abu Dhabi state-owned Advanced Technology Investment Company. Credit Suisse was sole financial adviser to the Abu Dhabi side of this deal; Citi, Deutsche Bank, and Morgan Stanley advised the Singaporeans. Even according to Goldman Sachss own measures, this was the third-biggest deal of the year.
Credit Suisse advised on intra-regional deals; it advised Middle Eastern clients making purchases elsewhere in the world, and it helped entities outside the region bring in investment from the Middle East. The banks work extended to aerospace and media, as well as to technology and automobiles.
BNP Paribas stands out in project finance. First, for the volume and number of deals in which it was involved and, secondly, for the range of sectors and geographies these covered. BNP Paribas worked on five transactions, with an aggregate project cost of $6.7 billion. These were in power, wastewater and chemical production, in Bahrain, Egypt, Jordan and UAE. But the French bank also impressed for the range of services it provided in these deals, as well as for the way the deals helped the project finance industry progress, both in the region and elsewhere in the world.
On two of its deals BNP Paribas was both financial adviser and mandated lead arranger. In the other three deals it was either adviser or lead arranger, in one case being mandated lead arranger and structuring bank. The latter was an $880 million arrangement involving a refinancing and expansion of a caustic soda plant near Port Said in Egypt. The deal was particularly eye-catching for being the first international project funded almost entirely by Indian banks.
Another notable deal was the financing of the $2.2 billion Al Dur desalination and electricity plant in Bahrain, which closed in June last year and on which BNP Paribas acted as financial adviser to the Bahraini ministry of finance. The success of the transaction helped reopen the project finance market after the crisis, allowing other large project deals in the region to follow, especially in power.
Deutsche Bankwins the risk management award because of its consistent provision of liquidity across a wider product range than its competitors, including in credit derivatives, money markets, local-rate derivatives, structured finance, local investment products and in cash market making. It was one of the leading market makers in credit default swaps against Dubai World risk following the emirates standstill announcement the main risk management event of the year.
In Euromoneys 2010 foreign exchange poll, voters in the Middle East gave Deutsche Bank the highest overall market share, when all products were taken into account. Standard Chartered was voted top for trading and strategy ideas in options, and for Asian currencies. Overall, non-financial corporations voted Standard Chartered number two overall.
But Standard Chartered wins the foreign exchange award above all for its commitment to expanding foreign exchange services in the region and for its strength in Islamic instruments. It is the only bank to have a Shariah-compliant online foreign exchange offering. It is also the first bank to have begun auto-quoting GCC currencies 24 hours a day. It is the only bank to base teams in the Middle East for foreign exchange structuring and foreign exchange structured products trading.
Euromoneys most recent cash management poll in October 2009 showed HSBC taking the top spot from Citi in the Middle East when non-financial institutions were asked which cash manager they used most. HSBC retained the top spots in Jordan, Kuwait, Qatar, Saudi Arabia and UAE and it took the top spot from Citi in Egypt. Among financial institutions, in euro transactions HSBC overtook Citi and in dollar and yen transactions Citis lead over HSBC narrowed.
Among HSBCs other notable achievements in cash management this year: in Saudi Arabia, HSBC affiliate Saudi British Bank became the first bank in the Kingdom to introduce national pooling. In the UAE, HSBC became the first foreign bank to be accredited under the ministry of labours wages protection system. In Egypt, HSBC worked with the central bank to become one of the first banks to conduct user-acceptance testing of a new real-time gross settlement system.