Dubai: The UAE’s investment banking scene is again becoming active with deal flows - and the prospect of fat bonuses making a return.
High oil prices, a surge in IPOs, the steady rise in mergers and acquisitions, and improved prospects in the loan syndication market driven by the post-Covid economic recovery is warranting more capital expenditure corporates. The investment banking space in GCC comprise of a plethora of services such as equity capital markets (ECM), debt capital markets (DCM), loan syndications, M&A activity, private equity and brokerage.
GCC investment banking activity peaked in 2007 with total fees of $5.5 billion. The global financial crisis of 2008 saw more than decade of low deal flows and fee incomes for investment banks. Despite limited improvement in DCM and M&A transactions, activity was relatively muted, which resulted in many of these banks downsizing or moving their GCC-focused staff to London, Singapore or Hong Kong.
“Now, things are looking up and banks are increasing their activity and staff in the region,” said an investment banker who recently relocated to Dubai from Singapore.
Saudi Aramco as catalyst
The Saudi Aramco’s $30 billion fund raising through an IPO in late 2019 marked the beginning of a change in the fortunes Western and regional investment banks. Large privatization efforts and economic diversification are once again boosting opportunities.
The likes of JPMorgan Chase, Citigroup, Deutsche Bank and HSBC remained active in key segments such as syndication, bond and sukuk issuances and M&A in the region.
“Low oil prices and the fiscal deficits that followed saw DCM activity, especially the sovereign space picking up during the last two years,” said a Deutsche Bank executive. “Going forward, economic diversification needs, private and public sector IPOs are likely to help deal flows in ECM and M&A space.”
Changing fortunes
A number of local and regional banks built investment banking teams in mid-2000s to cash in on the liquidity and equity market boom. It was the Saudi Aramco IPO that breathed new life into the regional investment baking.
Regional banks such as the National Commercial Bank of Saudi Arabia, Al Rajhi Capital, Banque Saudi Fransi, First Abu Dhabi Bank, Riyad Bank and SambaCapital played significant roles in the IPO.
Data shows UAE’s investment banks, too, are on a winning streak. Emirates NBD Capital (EMCAP) led a number of landmark transactions in terms of closed transaction value and deal volume, across debt and equity capital markets and loan syndications during 2021.
“2021 was a record-breaking year for us, clearly demonstrating the strength of our diversified and holistic product offering,” said Mohammed Al Bastaki, CEO, Emirates NBD Capital.
An equity boom
In the first quarter of 2022, stock exchanges in the GCC recorded their biggest quarterly gains since 2009, propelled by a rally in the oil market. The MSCI GCC index, which captures the performance of indexes across the region, went up 17.7 per cent in the last quarter, according to a report by Kamco Invest.
Bankers say market valuations and liquidity are clearly going to drive ECM activity supported by a strong pipeline of IPOs. Last year saw some listings in Abu Dhabi of ADNOC Drilling and Abu Dhabi Ports boosting the fee income of local investment banks. Dubai’s efforts to list 10 state-owned entities on the Dubai Financial Market will clearly benefit these banks.
DCM lull?
While IPOs and syndications are likely to keep up the tempo analysts expect to see a lull in DCM activity, primarily bonds and sukuk issuances largely driven by rising yields and lower funding needs of GCC sovereign borrowers.
“We expect issuance to fall as government deficits continue to narrow because of higher oil prices, lower coronavirus-related expenditure and accelerating economic activity in core Sukuk-issuing countries,” said Alexander Perjessy, Vice-President- Senior Analyst at Moody’s.
