Western bankers’ long wait for Gulf gold pays off

The spread of the coronavirus disease (COVID-19), in Riyadh
General view of Riyadh city, after the Saudi government eased a curfew, following the outbreak of the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia, May 7, 2020. REUTERS/Ahmed Yosri

LONDON, June 20 (Reuters Breakingviews) - Western investment banks suddenly favour the desert. The likes of HSBC (HSBA.L), (0005.HK), Citigroup (C.N) and Bank of America (BAC.N) are boosting teams in Saudi Arabia and the United Arab Emirates to tap into increased public listings and M&A activities in the region. The winners are those who placed their bet long before the rush happened.

As recently as 2019, the Gulf was a less happy hunting ground. While the $29 billion Saudi Aramco (2222.SE) raised in its initial public offering was a huge deal, it came with low fees and a difficult sovereign client. Bosses at Citi, HSBC, JPMorgan (JPM.N), Goldman Sachs (GS.N) and Morgan Stanley (MS.N) had to weigh maintaining their teams against the possibility that a boom in future work might not materialise.

Those doubts have now melted away amid a boom in big-ticket IPOs. While only 21 companies in the Middle East have listed so far this year, they’ve raised $12 billion, Dealogic data shows. In the same period last year, five companies raised only $670 million. Meanwhile, 195 U.S. and European IPOs have raised only $21 billion since January, against $219 billion raised in the same period in 2021. Gulf IPOs represent 7% of global IPO investment banking fees, against 2021’s 1%, according to Refinitiv.

Gulf mergers and acquisitions are also getting interesting. The soaring oil price and Western stock market selloffs mean Crown Prince Mohammed bin Salman’s $500 billion Public Investment Fund has greater firepower and juicier targets. The PIF has already bought minority stakes in gaming companies like Japan’s Nintendo (7974.T) and Embracer (EMBRACb.ST) in Sweden, while cash-rich Gulf companies such as UAE telco group e& (ETISALAT.AD), formerly known as Etisalat, recently spent $4.4 billion on a 10% stake in Vodafone (VOD.L).

The upshot is a bonanza for those with long-cemented relationships. JPMorgan, Goldman and Moelis (MC.N) have grabbed 50% of M&A fees in the UAE and Saudi worth $198 million so far this year, according to Refinitiv. All worked on Aramco, and JPMorgan’s links to Saudi go back decades. Fellow Aramco advisers HSBC and Citi grabbed 24% of IPO fees, Refinitiv data shows. Citi, which blotted its copybook after 9/11 by withdrawing from Saudi, has cemented improved relations via a personal visit from Chief Executive Jane Fraser. Meanwhile, Riyadh is getting less austere.

There’s one cloud on the horizon. Saudi, keen to compete with Dubai, may penalise banks that don’t headquarter regional operations in Riyadh. But if Western banks can manage this tension, the fees should keep rolling in.

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HSBC has hired at least five bankers in Saudi Arabia in recent months and moved one of its Dubai-based managing directors to Riyadh, Bloomberg reported on June 9.

Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has been shortlisted to buy a stake in the Middle East, North Africa and Central Asia Starbucks franchise held by Alshaya Group, Reuters reported on June 6, citing two sources.

Editing by George Hay, Pranav Kiran and Oliver Taslic

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Karen reports and writes columns on global technology and venture capital sectors, with specific interests in fintech, semiconductors, food delivery and alternative food sectors. She also covers the Middle East region, mining companies and deals. She received Reuters’ 2020 best commentary award for the “SoftBank’s debt problem” investigation; moderated panels at global conferences and appeared on videos and podcasts. Prior to Breakingviews, she was a gas and power reporter at S&P Global Platts in London and covered fund management at Morningstar UK. Karen also briefly worked at China Daily Europe and Bloomberg. Born and raised in Hong Kong, she is fluent in Mandarin and Cantonese. Contact: +447721821589