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| 11 January, 2018

Splashing the cash: Bankers' fees boosted by debt markets

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An investor uses his mobile phone at the Dubai Financial Market.

An investor uses his mobile phone at the Dubai Financial Market.

REUTERS/Ahmed Jadallah
Middle East investment banks more than doubled the amount of fees they earned from debt markets last year, despite the overall amount they earned remaining flat due to a lack of merger deals, according to new data.

The Middle Eastern Investment Banking Analysis report published by Thomson Reuters on Wednesday reported that bankers' fees totalled $912.4 million last year, a 0.1 percent year-on-year decline. However, the amount of fees earned by underwriting debt capital markets more than doubled to $256.3 million, which was the highest level since records were first compiled in 2000.

“Bolstered by Saudi Arabia’s $12.4 billion international Islamic bond in September, Middle Eastern debt issuance reached $103.7 billion during 2017, 33 percent more than the proceeds raised during last year and by far the best year in the region since records began in 1980,” said Nadim Najjar, Middle East and North Africa managing director for Thomson Reuters, in a press release accompanying the report.

The increase in fees earned from debt capital markets helped to plug a gap formed as a result of declining fees earned from mergers and acquisitions (M&A). Fees from completed M&A deals dropped by 21 percent last year to $181.9 million, which was the lowest level since 2012. This was despite the fact that inbound M&A hit a 10-year high of $7.3 billion, which was a 220 percent year-on-year increase, although this was skewed somewhat by Chinese state firms taking stakes in oil and gas concessions offered by Abu Dhabi National Oil Company, and by United States-based firm Tronox's buyout of a Saudi Arabian titanium dioxide business.

Fees earned from equity markets more than doubled to $191.3 million. Richard Clarke, head of KPMG's deal advisory practice for the Lower Gulf region, told Zawya in a telephone interview on Wednesday that there has "clearly been a very high demand" for debt issuance in the region.

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"A lot of governments, and corporates, have been taking advantage of favourable lending conditions throughout 2017," he said. "With the slightly lower oil prices, governments are having to cover public deficits by other means. One of the best means of covering that is obviously by government-sponsored bonds."

He added: "I suppose that is really good news for the region in a year where there has been political instability. International markets have clearly recognised that while there might be temporary issues that are being dealt with, there is still an underlying recognition that it's a good market to be in."

Equity market upbeat
Clarke also said that the increase in fees earned through equity markets was a positive sign ahead of the potential Saudi Aramco listing last year.

The Thomson Reuters data showed that the top 10 initial public offerings (IPOs) in local markets last year allowed firms to raise up to $3.1 billion, although almost $2.2 billion of this was raised in the last two months of the year - Emaar Development raised over $1.3 billion in November, and Adnoc Distribution earned $850.9 million in December.

"I think it's worth mentioning that there is a strong pipeline of potential deals moving into this year. I would expect to see a further increase in the number of IPOs and the fees therefore coming from them in 2018 - even setting aside the Aramco deal," said Clarke.

In an emerging markets report published by Bank of America Merrill Lynch on Sunday, MENA economist Jean-Michel Saliba said that debt issuance across the six members of the Gulf Cooperation Council "will be the key theme in the near term, particularly as issuers take advantage of low, longer-dated US rates."

Saliba said that Oman had recently mandated banks to arrange a deal involving bonds with three different maturity dates predicted to be worth $8.5 billion this year. It is also forecasting that Qatar will look to raise up to $10 billion, especially as it has a $2 billion Eurobond that is due to mature later this month.

Thomson Reuters is the parent company of Zawya.com.

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(Reporting by Michael Fahy, Editing by Shane McGinley)
(michael.fahy@thomsonreuters.com)

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