Middle East Report 2010

Financial markets across the globe have taken a battering in the past couple of years, with the Gulf region experiencing its fair share of difficulty. While the Western world was brought to its knees by sub-prime mortgages and collateralised debt obligations (CDOs), the GCC region has found its major issues coming from bursting real estate bubbles and over-extended balance sheets. And while it hasn’t seen the bank failures that have happened elsewhere, the GCC banking system has been severely tested and, thanks to much government support, has...

International banks have played a significant role in the development of the GCC region in recent years. It was European, Japanese and American money, on the whole, that helped to fuel the boom years of the early part of the 21st century. However, the benefits haven’t all been flowing one way, with the growth of the Gulf region opening up many new opportunities from which international banks can generate business. The middle part of the decade was a particularly frantic time for international banks involved in the region. Lending grew at a...

With their underdeveloped and shaky legal systems, investing in corporates in Middle Eastern countries is always a riskier proposition than investing in the US or Western Europe. This is not confined to sukuk. Conventional debt financings of Middle Eastern corporates tend to be expensive, relative to the size of the company. In July, Kuwait Projects Company, despite its strong sovereign links, paid 99.20 for 10-year bonds. More recently, in October, Qatar Telecom priced a six-year deal at 99.24, and a 10-year at 99.16. Investors in the Middle...

Although, bond issuance has been more evenly spread among the Gulf jurisdictions in 2010 so far, origination desks are confident that the primary market will pick up. Qatar undoubtedly emerged as last year’s darling as the deals from a small nation of less than two million people broke records, notched a few firsts and re-priced the whole existing credit curve for its credits. The sovereign alone sold US$10bn of Eurobonds and US$5.3bn was issued by Qatari entities, including the Ras Laffan 30-year deal, the largest emerging markets FIG offering...

Particular quasi-sovereign and corporate names have had to face up to serious issues in meeting all their debt obligations in recent months. These problems, at the likes of Dubai World, Saad Group and Algosaibi Group, have caused many headaches for policymakers and the banks that lent them the money during the boom times. The coming months have the potential to see the turn of banks behind the cue-ball as a lot of the money that they borrowed during that same surge of lending between 2006 and 2008 is now coming due. Billions of dollars-worth of...

In mid-2008, equity capital markets bankers covering the Middle East relocated from London to Dubai. Once Morgan Stanley, Goldman Sachs and Credit Suisse had made the first moves, other banks had to follow to avoid any sense that they were less committed to the region. Yet since then, markets have collapsed and issuance has been low. “Many people are looking around for ways to come back,” said one of the bankers that initially made the move but has since changed roles and relocated in Europe. “It hasn’t been hard to keep busy as there are...

With increasing recognition of the potential for private sector participation in all facets, the (r)evolution has begun. The economic challenges of the last two years have forced a re-prioritisation of increasingly limited capital and put pressure on MENA governments to focus on developing core infrastructure in order to support sustainable economic growth in the region. A new sense of realism favours essential public infrastructure initiatives such as roads, air/sea ports, mass transit, and utilities projects over the real estate initiatives...

Four assets developed by AES and its partner in the AES Oasis joint venture, the Islamic Development Bank Infrastructure Fund under a 68/32 split, were put up for sale in May 2009 – Barka 1 in Oman and Almanakher in Jordan plus the Lal Pir and PakGen assets in Pakistan. Ras Laffan A in Qatar was developed solely by AES and it was decided to sell this holding separately. AES had decided to pull out of the power development business in the Gulf. Citigroup and HSBC were appointed to advise. Initially, sales price targets were high with US$1bn...

The financing for Barka 3 and Sohar 2 was completed over 15 weeks, a remarkable achievement for a transaction entailing two separate projects. Key to this success was the sponsors’ approach in creating a “power of two” by leveraging all similarities and parallels between the two projects to build a generic financing solution while holding the specific intricacies of each project until the very end. The other key success factor was the presence of two export credit agencies, Euler-Hermes and Kexim, that were instrumental in bringing together the...