Emerging Markets awards, Middle East, September 2013

Emerging Markets, World Bank editions, September 2013

Most impressive adviser on privatisations, PPP and infrastructure financing: HSBC/Saudi British Bank

Saudi Arabia is the market that matters most for new infrastructure in the Middle East, and HSBC, including its legacy businesses from the Saudi British Bank, has been at the forefront. And region-wide, the bank has helped arrange financing for infrastructure both on the debt and equity side, and in project finance.

In Saudi Arabia, arguably the standout infrastructure transaction of the last 18 months has been Madinah Airport. The General Authority for Civil Aviation awarded a project to take over the existing operations at Madinah and construct a new passenger terminal and its related infrastructure on a 25-year build, transfer and operate basis. The contract was awarded to the Tibah consortium, made up of TAV Airports, Saudi Oger and Al Rajhi Holdings, in October 2011.

HSBC has been involved in this deal throughout, first as a traffic, technical, environmental and modelling bank, and then, through Saudi British Bank, as mandated lead arranger on the term facilities and equity bridge loans, working capital facility provider, hedging coordinator and performance bond provider.

The financing part of the deal came together in 2012, with project costs of $1.1 billion to be funded through $400 million of equity bridge loans, repaid on completion, and $700 million of Shariah-compliant 18-year term facilities and a working capital facility.

Elsewhere in Saudi, HSBC was financial advisor to Saudi Aramco on the expansion of three captive gas-fired cogeneration plants, involving a total project cost of $430 million; again, through Saudi British Bank, HSBC was also involved as a managed lead arranger in support of Tihama Power Generation, the owner and operator of the existing sites.

HSBC was also financial advisor on a Shariah-compliant project financing for the $1.9 billion greenfield integrated acrylates complex in Jubail Industrial City, bringing together nine of the 11 Saudi commercial banks and financing three separate project companies. It was also financial advisor on a Shariah-compliant project financing for the $750 million greenfield EVA and LDPE petrochemical complex. And it was financial advisor – with Saudi British Bank mandated lead arranger – on another Shariah-compliant financing, for a US$840 million greenfield chloralkali and ethylene dichloride complex, also in Jubail.

Outside of Saudi, two other closed transactions stand out. One was a financing for a $3.7 billion hydrocracking and coking refinery being developed in Egypt at Mostorod, near Cairo, with SBC has pathfinder bank with market, insurance and financial modelling responsibilities, and as a mandated lead arranger.

The other was in Morocco, where HSBC was financial advisor on the Tarfaya Wind Farm in the country’s southwest. HSBC advised Office National de l’Electricite, a Moroccan state-owned utility, on the procurement of its first renewables IPP. This involved a limited recourse financing for the equivalent of $300 million in local currency by three local lenders. The project is considered a milestone in the implementation of a national renewable energy strategy, and represents 15% of the national target on wind energy.

Numerous other mandates have been won, suggesting more good work ahead from HSBC. Among them are another wind farm in Morocco, again as financial advisor to Office National d’Electrite, for phase two of its wind farms programme, consisting of five wind farms with a combined total capacity of 850MW; the expansion of a desalination facility in Qatar, the Eas Abu Fontas A2 expansion; the expansion of a refinery in Oman, the Sohar reginery; the financing of a new $650 million satellite for Yahsat, a private company owned by Mubadala (the investment arm of the Abu Dhabi government); and the Abu Dhabi Solid Waste to Energy project, which aims to use a million tons per year in an estimated $1 billion project. HSBC is also advising on Bahrain’s waste-to-energy project: a useful niche.

Outside of project finance, HSBC can be found assisting with debt and equity funding to other infrastructure-related businesses. One of the very few notable IPOs in the region in the last 18 months was for Asiacell Communications PJSC, which was listed on the Iraqi bourse in 2012 with a $1.27 billion capital raising. This really was a landmark transaction: by far the biggest IPO in Iraq, and in fact the largest in the Middle East for four years. The share sale doubled the market capitalisation of the entire Iraqi bourse. It brought comparisons with a previous, much smaller IPO, the $50 million of Wataniya Palestine; HSBC was on that too.

And on the debt side, bonds and sukuk were arranged for names including Saudi Electricity Company (in the first ever international 30-year sukuk), Etihad Airways, Abu Dhabi National Energy Co and Tasnee, the National Industrialization Company. HSBC has the geographical and the product range to assist with the development of infrastructure region-wide.

Chris Wright

Emerging Markets

The most impressive innovator in terms of financing for region-specific problems, Middle East: National Bank of Abu Dhabi

National Bank of Abu Dhabi takes this award chiefly for its vision for the next five years. Its mission statement is to be recognised as the world’s best Arab bank, with a focus on what it calls the West-East corridor.

This might not sound visionary, but it is surprising how few banks from the region have sought to expand beyond the region and to take advantage of trade flows, particularly with Asia. Kuwait Finance House has done so, but has tended to focus on particular areas of expertise like air finance; Al Rajhi opted to set up a full retail presence in Malaysia, but has not done much else in Asia; and other groups such as Al Baraka have expanded regionally but not far beyond.

NBAD’s plans start local – step one is to build the largest, safest and best performing bank in the UAE, followed by the GCC – but then become global. Stage two is to deepen the bank’s wholesale network across what it calls “the new West-East corridor” and integrate existing European and North American platforms into this network; and stage three is to build five international bank franchises in the largest and fastest growing economies in that corridor.

Firstly, what does this corridor actually mean? In the bank’s literature given to investors, it takes a map and draws a rectangle with its lines of latitude roughly on Paris and Jakarta, with its west end at the West African coast and its east end just past Tokyo. Within this rectangle sit a number of megacities (10 million inhabitants or more) today – Cairo, Istanbul, Beijing, Shanghai, Seoul, Tokyo, Osaka, Manila, Delhi, Mumbai – but also a whole lot more that are expected to have that scale by 2025, from Lagos and Kinshasa in Africa to Jakarta, Lahore and a host of Chinese and Indian cities. The idea is to focus on growth and trade within this block, while continuing to support UAE customers in London, Paris, Switzerland and Washington.

It has the backing to make a decent attempt at this. The banker to the Abu Dhabi government, it is 70% state owned through the Abu Dhabi Investment Council. Rated AA- by Fitch, Aa3 by Moody’s and A+ by S&P, it had a market cap of US$13.2 billion and assets of AED301 billion (US$81.95 billion) as of June 30 and has the lowest non-performing loan ratio, and highest coverage, in the UAE. It already covers 18 countries, from usual global centres to Sudan and South Sudan, Libya, Egypt, Lebanon, Jordan and Brazil, as well as all the GCC states. It runs a fairly diversified business model from domestic consumer and Islamic banking to corporate, real estate, global financial markets and global wealth.

As an investment bank, it already has a position of leadership among regional competitors. In Middle East debt capital markets it ranked first among the regional bookrunners in the year to March 31, although it only comes third by deals and fourth by value when pitted against the internationals too (a sign of the challenge ahead). What’s more impressive than that is the range of innovation that has already appeared in NBAD’s DCM transactions. Recent examples include the first Shariah-compliant hybrid tier one sukuk, for Abu Dhabi Islamic Bank; the first dollar tier two fixed rate sukuk, from Bank Asya; the first dollar fixed rate issue from an Omani financial institution, for Bank Muscat; the first ever unrated 30-year dollar Reg S deal, for the government of Dubai; the first public dollar deal by a Saudi quasi-sovereign bank, for Gulf International Bank; and the largest ever dollar subordinated issue from the GCC, for Abu Dhabi Commercial Bank. It is showing growing ability outside of dollars and dirhams, raising funds in ringgit in its own name, euros for IPIC, and Australian dollars for itself. It is already winning mandates from issuers in the region outside of the UAE, not just in the GCC but Turkey.

Additionally, it claims to be (and appears to be) the only bank with a dedicated on-the-ground debt syndicate desk, alongside a distribution platform. Importantly, it is an active market maker for Middle East bonds and sukuk, which will be increasingly important if the market intends to grow and secondary market liquidity becomes more important.

The man who has been entrusted with turning NBAD into the regional powerhouse it intends to be is Alex Thursby, who was appointed Group CEO on July 1. Thursby had spent the previous six years at ANZ serving as CEO for the bank in Asia Pacific and the Americas, and was considered the architect of the bank’s regional expansion, apparently spending most of his existence on the road attempting to bed in ANZ’s acquisition of RBS’s assets in six Asian countries. Thursby is originally a Standard Chartered man, and one might expect to see some of the characteristics of that institution in NBAD’s expansion.

The most impressive contributor to the development of local capital markets: HSBC/Saudi British Bank

It’s something of a cliché that the market that matters most in the Gulf is Saudi Arabia, if only foreign institutions could access it. While the world waits for that to happen, HSBC Saudi Arabia is the bank that is most closely involved with the development of the local markets.

In the year to March 31, HSBC arranged almost twice as much debt in Saudi Arabia as Deutsche Bank in second, a total of US$2.74 billion and SAR14.05 billion. HSBC has been the leading debt house in Saudi since its inception in 2006. Some transactions are in dollars, such as Saudi Electricity Company’s first ever 30-year dollar sukuk – which was the first dollar 30-year international sukuk anywhere in the world, as well as the largest ever international debt market issue from Saudi Arabia – and others in riyals.

Riyal deals over the last 18 months have included transactions up to SAR2 billion from Savola Group, Saudi Hollandi, Saudi Binladen, Olayan and Tasnee. Savola was a good example: a SAR1.5 billion deal in January, it was the inaugural transaction from the group. Tasnee, the National Industrialization Company, was also a debut, as was Olayan – only the second family-owned private company in Saudi to tap the sukuk market.

HSBC has also been active in corporate syndicated loans in Saudi, notably with a SAW9 billion facility for Saudi Mining Company (Ma’aden), viewed as the third pillar of the Saudi economy and owning a diverse portfolio of mineral assets at various stages of development.

The group’s excellence in local project finance is covered in the infrastructure award, but has included important roles on the expansion of Madinah Airport, new petrochemical complexes, and the expansion of the Tihama power plants.

And HSBC is active in the development of the Saudi equity markets – which would, if they ever liberalized sufficiently to warrant MSCI index inclusion, represent a considerable portfolio interest for global emerging market investors. HSBC has handled private placements of shares, stock options and restricted stock unit awards offered to employees in Saudi Arabia for at least 10 multinationals.

Outside of Saudi, HSBC’s contribution to the development of the market has taken various forms. It has, for example, strong on-the-ground equity capital markets capabilities across the region, with a 72-strong sales force working across 14 MENA markets and a top-ranked equity research team. It has five regional exchange memberships. Its Asiacell Communications transaction, where it was sole financial advisor to the issuer on its $1.27 billion IPO, also showed a clear contribution to one local market: Iraq, where the deal was so big it doubled the market cap of the entire bourse in a single issue.

It has contributed to several landmark debt transactions which, it not in local currency, have nevertheless demonstrated the growing sophistication of local issuers, and contributed to their markets. An example would be the first ever Shariah-compliant tier one issue for Abu Dhabi Islamic Bank, and the first ever public tier one instrument from a Dubai bank (Dubai Islamic Bank). And as a leading M&A advisor, it has also contributed to the shaping of local markets.

On a different tack, HSBC makes a priority of getting Middle East clients ready for the opportunities that will come with the RMB’s internationalization; HSBC expects it to become a top three global trade currency by 2014.

Alongside all of this is HSBC’s contribution to the development of Islamic finance in the region. It is true that HSBC has scaled back much of its Islamic banking presence in the last two years, but it retains its strength in sukuk, and the development of this area has created a vital new avenue of fundraising and liquidity for banks, corporations and sovereigns in the region.

Will we see deep and liquid local debt and equity markets in the region outside of Saudi Arabia and, historically, Egypt? The ascension of Qatar and the UAE to the MSCI Emerging Markets index this year suggest a step in the right direction, bringing international best practice, and some index-tracking money, into the region. But it’s Saudi Arabia that is the main prize, and when that happens, HSBC is the house best placed to benefit.

The most impressive bank for sovereign borrowers, Middle East: Standard Chartered

The biggest sovereign deals from the region over the last 12 months have been from Israel, Bahrain, Lebanon (twice), the Dubai government in conventional form, and a Dubai sukuk. Standard Chartered was on three of them, more than any other bank. Add to that three other key deals between June and July 2012 – more than $6 billion of issuance from Bahrain, Qatar and the Islamic Development Bank – and the bank has been a clear leader in taking sovereigns to market.

Moreover, each of these transactions has been important, for varying reasons. The Kingdom of Bahrain’s US$1.5 billion raising in June 2012 was Bahrain’s largest ever bond or sukuk issue, and achieved 19-year funding at a time when the market was still concerned about social unrest from the country. Stanchart had also been a lead manager on Bahrain’s previous deal, this time a $750 million sukuk; the ability to work well on conventional and Islamic deals has been a hallmark of the bank’s performance in recent years. The market had not expected a deal of more than $1 billion in size; in fact, it achieved a $6 billion book.

The same month, Standard Charted was a lead manager on a US$800 million raising for the Islamic Development Bank. This sukuk paid a profit rate (an Islamic equivalent of a coupon) of just 1.357%, a considerable tightening from previous issues, and repricing the IDB much closer to its multilateral development bank peer group. The deal was also striking for selling 22% into Asia, and particularly Malaysian fund managers and pension funds.

One month later came the record-breaker: a US$4 billion dual tranche Reg S sukuk of five and 10-year funding from the State of Qatar. One of the joint leads and joint bookrunners on the deal, Standard Chartered contributed to the largest ever international Islamic bond, achieving the lowest ever funding levels for a 5 and 10-year sukuk from a sovereign. The five year deal priced at 2.099%, the 10-year, 3.241%. This remarkable deal achieved a record order book of $25 billion, all the more impressive for the fact that Qatar had not issued a sukuk since 2003. This deal really did redefine what could be done in the sovereign sukuk markets.

In January 2013, Dubai came to market with a $750 million 10-year sukuk, and then added a $500 million 30-year conventional tranche, its first at that tenor. Standard Chartered was a lead on both deals.

Taking 30-year exposure to Dubai, which at the time of issue was just three years past being on the brink of sovereign default, represented a leap of faith, and the bookrunners did well to achieve such interest in the conventional side of the deal. This was the lowest coupon ever on 30-year funding from the Middle East.

On the Islamic side, the sukuk represented the tightest pricing ever for Dubai, with a yield of 3.875%, well inside initial indications. The sukuk generated $11 billion of demand; one syndicate official said that when the 30-year conventional tranche was added, the books were open for 15 minutes and $3.8 billion of orders came in. This deal was a clear illustration of renewed confidence in Dubai.

Finally, in April the Republic of Lebanon launched a $1.1 billion deal, raising $600 million due 2023 and $500 million due 2027. Lebanon is rated just single B, yet priced its debt at 6.15% and 6.7% respectively, well inside similarly-rated Ukraine. This was a challenging sell, with Prime Minister Najib Mikati having resigned in March, and with Lebanon being the most indebted Arab country.

The sovereign deals reflect a general level of excellence at Standard Chartered on Middle East debt capital markets. Aside from the sovereigns, the bank has represented more than 20 financial institutions and corporates in international issues in the last 18 months, is considered a leading market maker for Middle East paper, and has handled many debut issues. On top of that, it has a track record of innovation, handling the first Chinese renminbi deal for a Middle Eastern issuer (Emirates NBD), taking Mumtalakat into Malaysian ringgit, managing the first public tier one issuance by a GCC bank for the Abu Dhabi Islamic Bank in November 2012 (following it with another for Dubai Islamic Bank shortly afterwards), and building an amortising bond and sukuk structure, a first in the region, for the airline Emirates. Other deals for state-linked enterprises in the last 18 months have included Dubai Electricity & Water Authority, the Jebel Ali Free Zone, Abu Dhabi National Energy Company and the Qatar National Bank.

The most impressive bank for corporate borrowers, Middle East: Citi

Citi turns up on a great many of the deals that matter in the Middle East, and this is nowhere more true than on deals for the region’s biggest corporates, be they state-backed or private. In the 12 months to the end of August it was a lead manager on six of the biggest debt capital markets deals from the Middle East, according to data compiled for Emerging Markets by Dealogic.

One of the biggest was a $2 billion bond for Abu Dhabi National Energy Co, or Taqa, in December 2012.  The utility, which is linked to the government of the United Arab Emirates, printed $750 million of five-year paper and $1.25 billion of 10-year at 200 and 210 basis points over US treasuries. This was tight pricing, inside Taqa’s own curve. Citi says the final orderbook for the deal reached $9 billion for the first tranche, $11 billion from the second, with each attracting more than 400 investors. This was the largest ever dollar order book for a Middle East corporate at the time.

Citi was one of a few names that was then a mandated lead arranger on a $2.5 billion dual tranche, multi-currency revolving credit facility that was signed by Taqa the following week. This, too, was priced exceptionally tightly: a three year tranche paying 75 basis points, and a five year paying 100 basis points, with some additional incremental charges depending on how much of the facility is drawn.

Just a day after that loan was signed, Citi was one of the bookrunners on a $1.3 billion corporate bond for Israel’s Teva Pharmaceutical Finance. And, once again, the deal was then followed by a large loan that once again involved Citi as a co-ordinating bookrunner and mandated lead arranger, this time a $3 billion five-year unsecured revolving credit facility. This ability to provide equally good service to corporate borrowers on the bond and loan side has stood Citi in good stead in the region.

This year has been particularly active, starting in January with a $1 billion bond for Qatar’s Qtel. This deal, a two tranche offer, stood out for including a $500 million 30-year tranche, dramatically lengthening the company’s curve. A second $500 million tranche was in 15-year notes.

In February, a standout deal was a $1 billion financing for Dubai Electricity & Water Authority (DEWA). This was a 3% sukuk, attracting a $5.3 billion order book including over 240 investors.

The 3% yield was the lowest ever for a Dubai issuer, and it priced inside DEWA’s outstanding debt. More than that, it priced at a yield below that of the government itself: it is argued that the deal, and its price, triggered a rally across the Dubai curve. This was also the first international sukuk from DEWA to be denominated in dollars.

In March, another UAE corporate, the airline Emirates, through its Medjool funding arm, raised $1 billion in a 3.875% amortizing sukuk with a 10-year maturity. This raised a number of firsts, starting with the amoritizing sukuk, which was important for an airline in order to be able to align its debt profile with planned future asset purchases. It was the first amortizing sukuk executed in the international debt capital markets. It was also the first international sukuk for an airline.

Additionally, it used a capacity-based structure based on a ‘rights to travel’ concept, pioneered by Citi in 2007, in order to make the deal Shariah compliant, since the sukuk must be underpinned by tangible assets and aircraft utilisation is something of an unknown quality. This was the first time the structure had been used to underpin a dollar sukuk. Citi was, with Standard Chartered, a global coordinator as well as a joint lead manager on the deal, which attracted $3.2 billion of demand and priced at the tight end of revised guidance.

June brought another key Israel deal, this time a $1.1 billion fundraising for Israel Electric Corp. The deal had a $600 million five-year tranche and $500 million 10-year.

Outside of the debt capital markets, Citi’s excellence in regional M&A has often involved its borrowing capacity too. Citi was, for example, financial advisor and financing bank in Batelco’s $1 billion acquisition of CWC’s Monaco and Island assets, giving the Bahraini telco a presence in 17 markets. And in other corporate advisory work, it was solicitation agent on a sukuk consent solicitation of $475 million for National Industries Group.