Investment banks swoop on Arab oil bonanza. Foreign investment banks are rushing to cash in on the oil boom in Gulf Arab states with the region’s capital market surging and local investors scouring the globe for deals.
Published: Saturday, 17 September, 2005, 11:38 AM Doha Time
DUBAI/LONDON: Foreign investment banks are rushing to cash in on the oil boom in Gulf Arab states with the region’s capital market surging and local investors scouring the globe for deals.
Some banks are gearing up for the launch on September 26 of the new Dubai International Financial Exchange (DIFX), trumpeted by local officials as a project that will transform the Gulf emirate into another New York or London.
Even for those who are cautious about such ambitions, there is no denying the surge in share issues, mergers, and other business for investment banks.
Bankers estimate there will be more than $150bn in project finance alone over the next five years, if oil prices remain strong, from Gulf Arab states – Saudi Arabia, Qatar, the United Arab Emirates, Bahrain, Kuwait and Oman.
In the UAE, trading volume soared 343% on the Abu Dhabi stock market in 2004 and 1,238% on the Dubai market.
The price of a barrel of crude has doubled in a two-year rally, driven by US and Asian demand, to touch levels in real terms not seen since 1980, the year of the Iran-Iraq war.
Middle Eastern oil exporters are estimated to have netted over $1tn in oil revenues in the past five years.
There are questions about how long the boom will last but many banks find the potential rewards irresistible.
While foreign banks have always vied for a piece of the pie in the world’s biggest oil-exporting region, a mix of factors, including soaring crude prices, is changing where bankers sit.
“Traditionally, investment banking has been done by top tier international banks offshore, based in London,” said Omar Al-Salehi, Middle East head at UBS Investment Bank.
“The region is changing and there are more deals, with the higher oil price and more privatisation, so now people are reviewing whether to put bankers on the ground.”
Deutsche Bank is the latest arrival, announcing it would set up an investment banking arm in Riyadh. In the last three months, Citigroup has moved two senior bankers to Dubai from London.
This month HSBC opened an investment banking unit to capitalise on the billions of dollars of state investment projects expected in Qatar. “There has been an increase of demand for financial analysts in the region both from within the UAE and overseas for foreign banks,” said Hassan Yousaf of bayt.com, a regional recruitment agency.
Foreign banks are already big players in the region, taking up most of the top 10 positions in areas such as project finance, debt capital markets and merger and acquisitions advisory, according to data provided by Dealogic.
But recent growth in these businesses is unprecedented.
Volumes in regional project finance and merger and acquisitions in 2005 have already surged past the 2004 total and are double that of 2001. Nearly $11bn has been raised in debt capital markets so far this year, more than double the 2001 figure, Dealogic data shows.
“Investment banking activity is indeed on the rise ... the established foreign and local banks are adding to exciting teams – not just at analyst level, but at more senior levels as well,” said Dubai-based Barbara van Meir, at Ingram Executive Search.
New business is also opening up as the Gulf investors, facing an embarrassment of riches, look to invest abroad.
“Investing both within and outside the region is more strategic now. It’s not just taking capital and investing it as a minority shareholder,” said David Livingstone, HSBC’s head of global investment banking advisory for the region.
Regional investors have snapped up foreign assets in the last year, such as when Dubai International Capital bought British leisure group Tussauds in March and the UAE’s Emirates Commmunications (Etisalat) took a 26% stake in Pakistan
Telecommunications.
There are longer-term opportunities arising from the hope that tighter regulation will entice foreign companies to list on the DIFX, essentially a new stock market designed to give firms outside the region access to its huge liquidity surplus.
“They are not saying this will be regional. They are saying this is going to be wider, this could be a rival to New York and London,” said Shirish Apte, who heads Citigroup’s corporate and investment banking in the Middle East.
Good for Elmat!!
With more local firms allowing foreigners to buy stakes, international investment banks are looking to broker the cash flow and provide analysis on the companies.
Behind all this activity bankers admit to a nagging worry about whether the Gulf boom is a bubble waiting to burst.
“The real question is, how long will this growth trend last,” said Citigroup’s Apte. – Reuters
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