The IFR Middle East Awards 2013

11 min read

Bank of the Year: HSBC

At a time when many international banks are rushing to return bankers to Dubai and expressing an unwavering commitment to the Middle East, HSBC can, without any doubt, genuinely claim to have boots on the ground in a business that has racked up 60 years in the region. The bank is reaping the rewards, having managed successfully to come through the Gulf property crisis of 2009–10 and the Arab Spring of 2011 alongside clients, and invested at the same time.

HSBC’s business in the region is uniquely diverse in terms of geography and asset class. The bank topped both bond and loan tables for 2013 whether measured by proceeds or number of deals, and helped run vital ECM and M&A transactions, such as the London IPO of Al Noor Hospitals and Etihad’s acquisition of India’s Jet Airways. The bank was also financial adviser on the US$1.28bn float of Asiacell in Iraq, the largest ECM deal of the year.

The active bond markets allowed HSBC to illustrate its strength in depth. It was involved in a range of significant deals from Dubai’s triumphant return to public markets to Saudi Electricity’s record-breaking 30-year sukuk and Majid Al Futtaim’s pioneering US$500m hybrid perpetual non-call note; all candidates for the year’s best deal.

Countries and emirates were ticked off through the year: managing an IPO of Sembcorp Salalah on Oman’s main bourse, Jordan’s return to international bond markets and Qatari telecoms firm Ooredoo’s debut sukuk to mention a few examples. The bank also showed progress in linking emerging markets with the Etihad-Jet Airways deal.

For a clear commitment to the region borne out by a unique spread of tombstones, plus leading roles in structural innovation in the most challenging deals, HSBC is IFR’s Middle East Bank of the Year.

Regional Bank of the Year: Emirates NBD

Many local banks in the Middle East remain just that – local, and frequently reliant on government mandates. Generally, Qatari banks do business in Qatar, Emirati banks in the UAE and so on.

Emirates NBD is one bank that has strengthened its investment banking franchise as it has started to move beyond its own borders. This is a crucial attribute if regional banks are to compete with the international banks in both ideas and league tables.

It is only recently that banks based in the Middle East broke into the top 10 in bond tables at all. In 2013 there were two of them, Emirates NBD was one.

For loans, it is in the top 10 for the Middle East in both MLA and bookrunner tables, and in the top three as far as regional banks are concerned.

While numbers in themselves do not tell the whole story, Emirates NBD’s list of deals shows that the bank is not just dependent on Dubai’s state-linked firms for mandates.

In bond markets, it ran transactions for Saudi real estate firm Dar Al-Arkan, Bahrain’s Albaraka and Turkey’s Bank Asya to name a few.

Of course, it was also involved in key Dubai deals in a year when the emirate dominated headlines in the region. This meant that the investment banking team worked on deals, including Dubai’s dual-tranche sukuk and conventional at the start of the year, airline Emirates’ amortisers, a Tier 1 perpetual sukuk by Dubai Islamic Bank and Majid Al Futtaim’s corporate hybrid.

The bank consolidated its strength in its home market and made significant progress overseas, and for this reason it is IFR’s Middle East Regional Bank of the Year.

Issuer of the Year: Emirates

When looking at issuers in the Middle East, Dubai’s flagship airline carrier stands out. Of course, as an ambitious company that wants to grow at an exponential rate, its funding needs are vast. So it is always likely to be one of the more frequent borrowers.

But the way it goes about those deals compares well not just with other Middle East issuers but with other issuers in the EMEA region and in the airlines sector globally.

In 2013, Emirates completed a series of different types of deals, all noteworthy in their own way. In 2012 the issuer had become the first to bring the enhance equipment trust certificate structure to the Middle East. In 2013, it used the structure more than once, completing a US$148m deal in January and then went one better than the previous year’s deal by raising US$650m in EETCs in June to fund the delivery of aircraft.

In between the two deals, it became only the second airlines carrier to raise aircraft funding through a loan backed by French ECA Compagnie Francaise d’Assurance pour le Commerce Exterieur.

But the airline will be best remembered for its two forays into international markets within a month of each other.

A US$750m conventional note was possibly the one blip on its record – the amortising structure did not go down well with investors and the note fell in the aftermarket despite a reasonably supportive backdrop and goodwill from the Dubai sovereign’s deal from earlier in the year.

It made up for this with an immediate follow-up, this time with a US$1bn amortising sukuk. The remarkable aspect of that deal was the use of revenues per passenger as the underlying asset, a breakaway from the traditional use of real estate assets to back sukuk. This was groundbreaking for bond markets in the region, and later in the year. Qatar’s Ooredoo followed suit, using mobile phone airtime as an underlying asset on their deal.

Emirates is likely to be a frequent borrower, particularly in light of a whopping US$99bn order for planes made recently. The diverse funding pools it tapped in 2013 will give the firm several options. For its sophistication and forward planning, Emirates is IFR’s Issuer of the Year for the Middle East.

Issue of the Year: Majid Al Futtaim

Emirati malls operator Majid Al Futtaim in November became the first corporate from the Middle East to issue a hybrid note in international markets. It missed out on becoming the first corporate in the region to issue a hybrid by a matter of weeks, Saudi Arabia’s Almarai holds that honour via a local sukuk deal.

But MAF faced much steeper challenges than its Saudi counterpart in terms of execution and market risk. In fact, the company had roadshowed in May for the deal, but decided not to go ahead as Fed chairman Ben Bernanke’s tapering remarks caused havoc in emerging markets.

The company would probably have got a done deal at that point, and possibly at a better rate, but the issuer had the maturity to look beyond the funding cost alone and opted not to risk a destructive aftermarket, which looked likely at that stage.

By waiting until November to get the deal done, the company may have sacrificed anywhere between 50bp and 100bp in terms of the coupon, but it did receive an excellent reception from investors, the tapering worries having died down somewhat. Since the US$500m perpetual non-call five note priced at par, it has rallied to 106.5 and at least one investor sees further upside.

The deal was to provide balance-sheet support for its acquisition of Carrefour’s minority stake in a joint venture after becoming the first corporate from the Middle East to issue hybrid bonds in the international markets.

For bringing a pioneering deal to market and for prioritising the company’s long-term relationship with investors over pricing, MAF’s US$500m 7.125% perpetual non-call five note is IFR’s Deal of the Year for the Middle East.

Islamic Issue of the Year: Sadara Petrochemicals

In a year of firsts, the US$20bn Sadara petrochemicals project, a joint venture between heavyweights Saudi Aramco and Dow Chemicals, had one that may yet prove to be among the most significant.

While investors were always likely to grasp at a rare chance to get exposure to the world’s biggest oil firm (despite the lack of an explicit guarantee), the unusual feature of the funding package was the inclusion of a project sukuk – one of the first ever.

In the past, similar deals had been used to refinance project finance debt, but this was the first time a sukuk was going to be a direct part of the project financing, which in effect meant the underlying asset did not yet exist.

Leads had to structure the SR7.5bn (US$2bn) Islamic bond in such a way that the profit rate was based on a forward lease on the project upon completion.

As it was the first stage of the financing, it also had to include a put option contingent on other aspects of the funding package falling into place.

The deal may prove to be a test run for other Saudi state-owned firms at a time when the authorities are planning a massive and unprecedented investment in infrastructure.

The transaction’s success could provide the government with an invaluable tool to go fund this programme. For its creativity in structure, Sadara’s SR7.5bn (US$2bn) project sukuk is IFR’s Islamic Deal of the Year.