How the Qatar mandate was lost and won

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One year ago, Abdul Kadir Qadi, director of financial affairs to the state of Qatar, telexed 40 international banks inviting them to tender for the management of a $300 million loan, the state's first. The telexes did not mention any individual borrower or project, but they began what was to be one of the most toughly contested fights ever for a Eurocredit mandate. By Nigel Bance

1977 qatar map

In December 1975 rumours first began to come out of Doha, the capital, that Qatar might borrow. The rumours were surprising — nobody in the market really expected the oil state, with substantial official reserves, to raise external finance.

Tenders were duly sent to Doha replying to Qadi's invitation, but nothing happened for several months. Says one banker who was closely involved "after sending in the tender absolutely nothing happened. We had no reply so we came to the conclusion that Qatar was testing the water and just wanted to know what its credit rating was". It was also believed at the time that a strong faction inside the Qatar Government was against any form of borrowing.

However, in November 1976 Qatar changed its mind. On November 25, ten banks received a telex from QAPCO, the Qatar petrochemical company, formally requesting a bid for a QAPCO loan. QAPCO wanted to borrow $175 million at both fixed and floating rates over ten years. The ten banks included Chase Manhattan, Arab Morgan Grenfell, UBAF, BAII, Citibank, French-Arab Bank, Dresdner Bank and Société Générale de Banque. The terms in the November invitation varied.

The banks were now shuffling themselves into two powerful syndicates each hoping for the mandate. Paris-based BAII headed a syndicate which included Bank of America, Citibank and Deutsche Bank. The opposition included UBAF and Arab Morgan Grenfell and was led by Chase. Tenders were sent to Doha in December.

All interested parties were invited to Paris for several meetings with QAPCO representatives in January 1977. Kidder Peabody had formed another syndicate and was present at the meetings, but it soon dropped out of the proceedings. At the meetings QAPCO decided to increase the loan from $175 million to $230 million, and it was agreed that the spread above Libor should be 1⅛%.

Halfway through the meeting a telephone call was put through from Doha. The QAPCO representative returned with news that stunned the bankers present.

The amount and the terms were to change yet again. In London on February 18, QAPCO again met representatives of the BAII and Chase syndicates. Halfway through the meeting a telephone call was put through from Doha. One of the QAPCO representatives left the room to take the call, and returned with news that stunned the bankers present.

Instead of wanting to borrow $230 million for QAPCO, the Qatar Ministry of Finance wanted to increase the package to take in loans for QAFCO, the Qatar fertilizer company, QASCO, the Qatar steel company and the Qatar General Petroleum Corporation. The banks were now asked to tender for a $550 million package, to include all four Qatar entities. The loan would be co-ordinated in Qatar by the IDTC, the Industrial Development Technical Centre.

Each syndicate reworked its sums, but there was concern in both camps that a loan of $550 million for a new entrant to the Euromarkets was too large. However, tenders were sent in for that amount. The Chase-led syndicate offered $135 million at a fixed rate, and $415 million at a floating rate, and the package included both major and Arab currencies at a spread of 1⅛%. Chase expanded their management group from three to six to include First Chicago, the Hongkong Banking Group and Paribas to help with the additional underwriting.

On March 23, both syndicates were invited to Doha to present their bids and to meet Qadi who was known to favour a fixed and floating package. It was in Doha that the BAII and Chase syndicates found, much to their surprise, that another syndicate was involved. Hambros Bank, which holds a small shareholding in the fertilizer company, headed a third syndicate competing for the mandate.

Qadi wanted the $550 million loan split between fixed and floating rates: he wanted the $350 million floating part spread over eight years and the remaining $200 million was to be over ten years. At the beginning of April he had made up his mind. The BAII and Hambros tenders were accepted. The syndicate headed by Chase had lost. It was agreed that BAII would underwrite the fixed rate $200 million, and Hambros the floating rate $350 million. BAII had been prepared for a favourable decision — it already had the entire $200 million underwritten. In spite of the oral acceptance of the BAII and Hambros bids, a formal mandate had not been given.

"Suddenly out of the blue we found that the mandate had been given to Chase on an entirely different basis."

BAII and Hambros believed that they had successfully beaten off the Chase challenge. Then, "suddenly quite out of the blue" says one banker involved in the BAII syndicate "we found that the mandate had been given to Chase on an entirely different basis". The mandate was for $350 million floating rate issue over eight years at a spread of 1%. Chase knew it had the mandate on April 12, a fact confirmed by telex from Doha on April 16. The news that Chase had taken the mandate came as a complete surprise to both Hambros and BAII: Hambros was telephoned the news and "they were absolutely shattered" according to one insider.

Why Qatar suddenly opted for a floating rate package for $350 million instead of the originally intended $550 million is unclear, but it is known that the ruler of Qatar, Sheikh Khalifa bin Hamad al-Thani, and the Minister of Finance, the Ruler's son, were against a package that included both fixed and floating rates and over-ruled Qadi. The borrowers, too, were reportedly not too happy about the package. There were doubts as to Hambros' ability to underwrite the $350 million, and it is said that member banks in the BAII syndicate did not see eye to eye either. It would appear that the amount of the issue was pared down because the four Qatar entities were not prepared to produce proper cash flow studies for the full $550 million.

"What was wrong" says one banker "was that the new amount had not been put out to tender. Qatar didn't give all the syndicates the opportunities to come back." The major reason why Chase was awarded the mandate, though, was that it was prepared to lower the spread above Libor to 1% from 1⅛%. The Qatar Government had made it very clear that it wanted 1% and the same terms and conditions as the recent Egypt loan. Chase agreed.

By the first week in May Chase had added Bankers Trust International, Kuwait Foreign Trading (KFTCIC), Lloyds Bank International and Qatar National Bank to the management. Qatar National Bank, for obvious reasons, had switched from the losing BAII group.

Technical reasons have held up the production of the placing memorandum. The major one is jurisdiction. It has yet to be agreed who is to be the central agent in Qatar to handle the distribution of the funds. The other hold-up has been over the feasibility studies on the four Qatar borrowing entities – only three have been carried out so far because data collection in Qatar is difficult. Chase, however, expect the signing at the end of July. The Qatar General Petroleum Corporation will receive $50 million and the other three $100 million each.

"The new amount was not put out to tender."

Chase sees the victory in clear-cut terms. "Despite a very intense bidding situation" says Robert Binney, the associate director who handled the issue for Chase "we see ourselves as the strongest bank in the Middle East. We have also recently lead managed the $250 million Egypt issue, and the $250 million for Iran Telecommunications. We are also a manager in the $100 million Emirtel issue for the United Arab Emirates."

Says a spokesman from BAII "The reason we lost is simple: We were not prepared to go to 1% from 1⅛%. BAII is not really a dollar bank, and as far as the Qatar deal is concerned we are not too bothered at losing." A spokesman from Hambros (it was prepared to accept a management fee of ⅜% against Chase's fee of ⅝%) said: "There are no hard feelings. We feel that our proposal was a good one, but we are not grumbling. You win some and you lose some."

A spokesman from Bank of America was more forthcoming. He thought that "the deal was an attractive one, but the amount that Qatar wanted to borrow was substantial and Qatar had never been tested in a deal like this. There was reluctance in our syndicate to come down to 1%, but this is not a reflection of the credit risk. Our group did put a lot of time and effort and expense into the loan, but perhaps we might win the next one."

First Chicago backed the right horse by going to the Chase syndicate, and is irritated by allegations that it was involved in two syndicates at the same time. "Hambros Bank" says Ian Scott of First Chicago "did approach us at one time during the proceedings, but the offer was turned down."

Most of the parties involved in the syndicates agree that the long battle was worth it because they expect Qatar to be back in the Euromarkets in the 18 months to finance the $350 million repayments.

"In the end" says Binney of Chase "it was touch and go whether the loan would go ahead. We didn't know whether Qatar would just forget the idea of borrowing and finance the projects out of official reserves."

Chase wanted to be seen to be the most capable lead manager of big Middle East loans: neighbouring Abu Dhabi is expected to enter the markets for a total of $1 billion over the next two years, and Chase, not surprisingly, wants the business. So will a lot of other banks.