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Middle East: Gulf investment banking in new low

Fewer prestige buyouts by state funds; International investors wary of political risk

Political trouble is leading to a contraction in Middle East investment banking.

Outbound M&A by the region’s sovereign wealth funds has been a key driver of investment-banking income up to now. They might continue to take advantage of distressed asset prices in the US and Europe, however, Gulf governments will now have to be mindful of the political implications of using state funds for foreign ventures. "Buyouts will need much clearer justification of the benefits to the local economy," says one banker.

Investments by entities such as Abu Dhabi’s Mubadala, whose mandate is to invest in firms that can contribute to domestic economic diversification, might be more likely. Mubadala will also now be among the few Middle East entities able to issue Eurobonds.

"Compared with 2010, Middle East bond issuance in 2011 will also be quieter but strong commodity prices and infrastructure spending mean there will be much more issuance in two or three years’ time," says Henrik Raber, Standard Chartered’s Dubai-based global head of debt capital markets.

Lingering debt troubles among some family groups in the region will also be harder to resolve, given the political troubles, although this might give investment banks more restructuring fees or lead to more private, hedge fund-backed financings.

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