IFR Middle East 2009

The recent downturn in the global economy has had a negative impact in relation to the number and size of sukuk being issued both globally and from within the GCC. That said, the Kingdom of Saudi Arabia, in our opinion, may emerge as a key player in contributing to an increase in corporate sukuk issuance originating from the GCC. The GCC and global sukuk market Sukuk have gained great popularity over the past five to 10 years. During this period the volume of GCC sukuk issuance has risen in line with the overall increased activity in debt capital markets. Sukuk from the GCC region reached a five-year high at an estimated US$37.6bn in 2007, accounting for about 60% of the global sukuk market. As a result of the financial crisis and the subsequent downturn in the global economy, debt security issuance from the GCC fell to an estimated US$22.5bn last year, a reduction of almost 40% from 2007. Historically, the UAE has been the main issuer of both sukuk and conventional bonds within the GCC, represented about half of total debt issuance in both 2007 and 2008 from the GCC. The UAE was followed by Saudi Arabia, which accounted for about 23% and 12% of total GCC debt issuance in 2007 and 2008, respectively. Despite the ongoing financial crisis, sukuk issues roughly maintained their proportional levels relative to total debt issues within the GCC in 2008. Sukuk issuance represented about half of total debt issuance from the GCC in 2007, and about 40% of total debt issuance from the GCC in 2008. Issues from the UAE in 2008 represented around 60% of GCC corporate sukuk, followed by issues from Saudi Arabia, which accounted for about 24% of GCC corporate sukuk. Based on announcements with respect to prospective issues, an estimated US$25bn of GCC sukuk are planned for 2009, with about half expected to continue to originate from the UAE.Aside from the UAE, there are indications that a significant contribution to sukuk originating from the GCC will come from Saudi Arabia, which on the sovereign level has announced a number of key infrastructure and development projects in line with its policy of inward domestic investment. The sectors in which Saudi Arabia plans to deploy capital over the next five years include oil and gas infrastructure, general infrastructure, petrochemicals and electricity and water projects.The current population demographics of Saudi Arabia are significant in supporting strong growth in the domestic consumer market. It is estimated that 79% of Saudi Arabia's population is under the age of 35, providing potential for greater demand for property mortgages, auto loans and general personal borrowing. It is expected that retail lenders will inevitably need to tap the international capital markets to meet potential increased demand for retail borrowing. The growth of the domestic market should also encourage the expansion of business interests that may require access to debt capital markets to help finance them.An additional recent development in Saudi Arabia is a proposed law that would permit the granting of mortgages. With the lifting of limitations on mortgages, the true underlying value of real estate assets in Saudi Arabia could be tapped for the benefit of both retail and commercial sectors. The establishment of a mortgage industry would be significant for property developers and the financial sector in Saudi Arabia and would be likely to lead to the need for constant debt-raising to support such growth. The proposal to implement such a mortgage law is believed to be in advanced stages of consideration by Saudi authorities.Recent key considerations in relation to structuring sukuk Further to the discussion on trends in sukuk issuance from the GCC, it may be helpful to briefly discuss recent key issues in relation to structuring sukuk generally and in Saudi Arabia.Returns and risk-sharing – By way of background, a fundamental principle of Sharia law is the prohibition of riba (ie, interest), which is essentially de

With project financing and FI dominant until the early part of the 2000s, the Middle East was largely a backwater loan market. This changed dramatically as the region's largely state-backed corporates used debt to gear up their equity investments in what turned out to be something of a global shopping spree. And the growth rate was dramatic. From signing 54 loans for just under US$14bn in 2000, at the height of the debt boom in 2007 Middle East entities signed 162 loans worth close to US$130bn. Even as global markets slumped in 2008, loans worth nearly US$99bn were signed in the year. However, hopes that Middle East's vast oil wealth could provide a base to enable the region's economies to decouple from the economic carnage spreading through the West were soon to prove forlorn. And just as the ascent of the market was rapid, so was its halt this year, with Middle East entities signing just 11 loans worth about US$7.7bn in the first four months of 2009. The reasons for the sudden halt in activity were threefold. First, Gulf banks themselves were soon implicated in the credit crisis through their exposure to sub-prime instruments and failed institutions; second, a number of high-profile defaults in Kuwait led to wider concerns over transparency in the country; and, most seriously, third, the view that Dubai-linked entities had over-borrowed led previously keen lenders to reconsider their commitment to the state and the wider region.That Dubai was the catalyst of lender concern in the Middle East is in retrospect not surprising. Dubai Inc's acquisition spree resulted in Emirate-linked entities owning outright, or stakes in, companies as diverse as P&O, Madame Tussauds and Nasdaq. A frenzy of largely unco-ordinated borrowing funded this binge, leaving Dubai with a debt pile that reached US$70bn at the end of 2008, translating into one the highest proportions of foreign debt to GDP in the developed world. Fears over Dubai's debt load were further compounded as the Emirate does not have the same resource wealth as other Gulf states.After a US$2.5bn refinancing for Borse Dubai that only managed to close fully subscribed after state intervention, Dubai started to soothe the market's nerves with the announcement that the UAE Central Bank had subscribed to half of a US$20bn bond programme. While the move was not seen as a panacea for all the Emirate's woes, bankers said that as a public acknowledgement of Dubai's funding issues, the federation's public display of support provided a floor from which market sentiment could once again rebuild. The move also meant that Dubai had more than enough leeway to cover its estimated refinancing requirement of US$11bn in 2009. Borse Dubai's difficulties had showed the tough task that once feted borrowers now faced in getting banks to maintain their lending commitments. In syndication Borse Dubai raised about US$1.2bn from the market for the refinancing, leaving the Investment Corporation of Dubai to step in and provide the shortfall through two local banks. Although the facility missed its target by a wide mark, it did show that lenders were still willing to support the market – albeit in smaller volumes than previously. The performance of a loan for Dubai Civil Aviation Authority later confirmed this view when it closed the refinancing of a US$1bn ijara facility at US$635m in April. Here, as with the Borse, the remainder was made up by the government.However, with the state successfully stabilising the market, lenders showed they were willing to support top tier borrowers in size, with a US$2.2bn loan for the Dubai Electricity & Water Authority (DEWA) key. The facility was a notable success, raising more than the launch amount in a market where other Dubai borrowers had missed their targets. Indeed, the facility offered a signpost to the likely direction of the loan market throughout 2009. "Market sentiment has improved slightly throughout the year," said Steve Perry, regional head of syndication,

While the Western world struggled to overcome the credit issues brought on by the collapse of confidence in US sub-prime mortgages, the first few months of 2008 were a golden age for the countries of the GCC. International banks, watching their profits dry up at home, flocked to the region to do business. Many GCC companies took advantage of the money being offered; none with more vigour than those based in Dubai. At one stage, during the month of July, five state-backed Dubai corporates launched loans into the market, on top of existing supply. Bankers were soon quipping that the market was suffering from "Dubai fatigue", given the amount of cash the Emirate was borrowing.However, the collapse of Lehman Brothers and the sharp slump in oil prices proved that a decoupling from outside events was a myth and even the GCC couldn't escape the worst global financial crisis since the Great Depression. As 2008 drew to a close, international loan markets became moribund, and anyone who hadn't completed their deal by the end of September found themselves locked out.This meant that those Dubai firms that had loans maturing in the final weeks of the year found themselves with a stark choice: pay up or default. Access to funds was just not possible, even for companies looking to roll over facilities. DIFC Investments found this out when it looked to refinance a US$500m one-year deal maturing in December. It launched a US$350m one-year loan on November 21, offering a 400bp margin, through Goldman Sachs. However, within 72 hours of the deal becoming public knowledge, it was pulled for being too expensive and the borrower paid the loan off.The experience of DIFC Investments was just a precursor of what was to come. Dubai had US$15bn of obligations due during 2009, according to estimates from Moody's, and banks were increasingly nervous of its ability to meet them. This hesitance compounded the restricted access to the loan market for all borrowers to create a situation where many bankers moved away from thinking of if a Dubai default was coming; to a case of when it would come.The first test would come soon for Dubai, with one of the biggest obligations due in the middle of February.Borse Dubai's original one-year deal, signed in March 2008, had been a resounding success. The US$3.78 facility, raised to fund its US$4.9bn purchase of Nordic stock exchange OMX and its subsequent tie-ups with the London Stock Exchange and Nasdaq, attracted massive interest from banks. This time though, things would be different.Timing was the key problem. Borse Dubai and its lead, HSBC, first approached banks for the deal in September but got squeezed out by the Lehman Brothers fallout and so returned in November. Even in a good year, November and December are not good months to approach banks for deals of this size: as the year draws to a close, activity traditionally tails off as credit committees wait until January to assess the tone of the market as activity picks up again.Yet 2008 had tailed off rapidly and expectations for the start of 2009 were very gloomy. Many potential participants were themselves going through a period of reflection and strategic realignment, so obtaining commitments for the region's first major deal of the year presented particular problems. Credit committees were reappraising their commitment to Dubai at a time when, sitting in London or New York, they must have been influenced by the constant stream of negative media coverage from Dubai specifically and the Middle East generally.HSBC's task had been helped by sterling's depreciation against the dollar in late 2008, meaning the £796m portion was now much less to refinance. However, this was the only comfort for Borse Dubai. Attempts to attract a top group of banks faltered, with Barclays, Citigroup and Goldman Sachs, who were at the top on the original facility, not renewing their commitments. Negotiations dragged on and, with time running out, HSBC eventually launched the deal to t

The credit crisis has badly affected the sukuk market and with assets expected to come under increasing stress, investor differentiation between the structural substance of deals will become ever more critical. However, given the Gulf region's large financing needs and the desire of many global lenders to tap its rich seam of demand, the longer-term picture is expected to remain positive. Islamic finance should be able to withstand the current economic crisis and may well emerge stronger, with a return to the 30% to 35% annual growth rates in primary issuance that were seen in pre-crisis days, according to Moody's. In a report published in February 2009 on Islamic finance, the rating agency said that the retail market, the Islamic mutual fund sector and asset management businesses in Islamic finance all have a strong future. Nonetheless, it is likely that progress will entail some conditions being met, such as improved transparency and risk management, a better understanding of the product, and continued structural innovation.The sovereign market for sukuk issuance could well prove one of the first to make a comeback. Bahrain is planning to make a US$500m Sharia-compliant five-year sukuk issue, expected at the end of May, while Indonesia has stated an intention to issue its inaugural overseas sukuk of US$650m. Indeed, the sukuk market in general is expected to power ahead this year. According to the chief economist of NCB Capital, Jarmo Kotilaine, the sukuk pipeline for this year is estimated at nearly US$40bn, with the Gulf region accounting for the lion's share. In a report entitled GCC Debt Capital Markets, Kotilaine wrote that the sukuk market had the "potential to capitalise on the growing appeal of Sharia-compliant finance in today's significantly more risk-averse market environment". According to NCB, Islamic bond sales from the UAE are likely to account for the bulk of financing from the Gulf region, with an estimated US$12.6bn expected this year, including as much as US$2.5bn from the Abu Dhabi ruling family-owned First Gulf Bank PJSC.But it is not just the region itself that is likely to provide the major issuers. Speaking at the Reuters Islamic Banking & Finance Summit, the chairman of the Islamic finance committee at Paris Europlace, Gilles Saint Marc, said that a French financial institution could issue €1bn of sukuk, possibly as early as this June. At that time, Rami Falah, head of Islamic banking, Middle East, at BNP, said that sukuk issues were trading at a discount and felt that the structured murabaha market could have even greater potential. After rising to a peak of around US$34bn in 2007, Sharia-compliant sukuk issuance tumbled to about half that level in 2008, according to S&P. According to Moody's, the sukuk market totalled US$47bn in 2007, taking the outstanding to almost US$100bn. Had it not been for the credit crisis, Moody's reckons that 2008 issuance would have been almost three times as much as the US$15bn that was actually seen. The ijara sukuk was the preferred structure of 2008, after the mudaraba sukuk that was the most popular in 2007. The increased popularity of the ijara sukuk "reflects its simple structure and the abundance of tangible assets with which it can be structured", Moody's said.Despite the sharp fall in issuance in 2008, it was not a year without highlights. Two very deserving transactions illustrate just how innovative the region is capable of becoming. Citigroup priced the first true-sale Islamic securitisation backed by land instalment sale receivables. The deal, originated by Sorouh Real Estate PJSC, saw Sun Finance, a Jersey SPV, issue Dh4.016bn (US$1.09bn) of sukuk certificates using a Sharia-compliant structure. The sukuk al-mudaraba al-muqayyada certificates were backed by scheduled instalment payments owed by sub-developers arising from the sale of plots of land on the Shams and Saraya developments that are taking place on a natural island off the coast of Abu Dhabi ci

Going into the year, Abu Dhabi Commercial Bank (ADCB), First Gulf Bank and Dubai Islamic Bank (DIB) had their rating outlooks downgraded by Moody's from stable to negative, with previously positive Dubai Bank brought down to stable. Standard & Poor's lowered its long-term and short-term counterparty credit ratings on DIB from A/A-1 to A–/A-2, and downgraded the outlook from stable to negative. Emirates Bank International and National Bank of Dubai were revised downwards from stable to negative, while Sharjah Islamic Bank went from positive to stable. Moody's said: "The rating action reflects the mounting liquidity pressures in the short to medium term; the growing downward pressures on asset prices (mainly stocks and properties); and the anticipated profitability pressures from rising funding costs derived from increasingly scarce liquidity and loss of confidence." Since then, banks across the region have employed a number of methods to shore up their foundations.Moves from Central Bank of the UAE (CBUAE) have been at the core of the efforts: cutting rates from 4.25% at the start of last year to 1% at present, following the latest cut of 0.5% in January; introducing the liquidity support facility (LSF), a US$14bn emergency lending facility enabling banks to meet existing funding commitments; and introducing a US dollar swap facility to increase dirham liquidity. The bank also held up the release of Q4 and full-year results as it reviewed asset valuations and major loans on banks' balance sheets, concerned that quoted asset values could be unrepresentative after a period of heavy price drops.In Abu Dhabi, one of the major steps has been the raising of Dh16bn (US$4.36bn) by five banks through issuing Tier 1 capital notes to the Emirate's government. ADCB, First Gulf Bank and National Bank of Abu Dhabi (NBAD) will each raise Dh4bn through the note sales, with Union National Bank (UNB) and Abu Dhabi Islamic Bank (ADIB) raising Dh2bn, with ADIB's coming through a sukuk issue. All the notes were issued at 6% per annum, payable semi-annually over five years, after which a floating rate over six-month EIBOR will apply. JP Morgan structured and arranged the transaction.The fact that it was solely Abu Dhabi institutions that received capital boosts raised concerns over Dubai's ability to support its own institutions, resulting in CDS to insure Dubai sovereign and corporate debt jumping. Five-year Dubai sovereign CDS rose by 75bp to 825bp, while banks in the Emirate saw the biggest jumps: five-year CDS for Emirates NBD, for example, jumped 100bp in the wake of the Abu Dhabi announcement.Emirates NBD has since announced that it intends to raise Dh3.5bn in Tier 1 capital by the end of the year, revealing few details but ruling out an equity issuance as the method. The bank needs to raise its capital adequacy ratio to meet the recent CBUAE edict. CBUAE governor, Sultan Bin Nasser Al Suwaidi, insisted that banks in the Emirates needed to boost their capital adequacy ratios, regardless of the quality of their assets, putting a deadline of June 30 this year to reach 11% and June 30 2010 to reach 12%.Another popular move has been to take money received from the liquidity support scheme and convert it into Tier 2 capital. The move to convert support scheme capital followed national rule changes preventing the government from converting the loans into equity stakes in participating banks. The new terms for the scheme meant that the government could only take an equity stake if the bank missed an interest payment on the money and that banks could convert cash gained in the first tranche of the liquidity scheme, worth Dh70bn overall, into Tier 2 capital.Emirates NBD was the first to announce such a tactic, through plans to convert Dh6.3bn of federal deposits into Tier 2 capital. The figure was subsequently doubled to Dh12.6bn (US$3.43bn), and will see the bank's capital adequacy ratio increase from 11.4% to 15.6%. The capital will be converted by E

At the start of the year, bankers were concerned that activity on Middle Eastern equity capital markets would not live up to the inflated expectations of 2008. With many leading institutions having recently expanded operations in the GCC in readiness for a boom, concerns mounted that newly expanded, Dubai-based ECM teams would stand idle.Saudi Arabia, the region's largest and most mature economy, seemed to provide an answer. Its economy is more diversified than those of neighbouring Emirates and it boasts a cash-rich investor base. It also had a robust pipeline of privatisations that the government wanted to use as a means to redistribute wealth to ordinary Saudis. Potential issuers were also plentiful among non-state firms in a range of sectors such as oil, property and infrastructure.But after a promising start to the year with an early, high-profile IPO, the deal flow dried up. Mobile telecoms firm Etihad Atheeb launched its sale of 30% of the company, raising SR300m (US$80m) in January with the offer 3.5 times covered. The CEO of Saudi Hollandi Capital, joint leads on the deal with NCB Capital, declared the transaction's success as indicative of the resilience of the Saudi economy. This view was shared well beyond the Kingdom's borders and banks with international ECM franchises started to engage in a scramble for market share in Saudi Arabia.The best established of the foreign banks in Saudi Arabia is arguably HSBC, though US rivals such as JP Morgan and Morgan Stanley have made considerable headway in carving out their own niches. The country presents some unique challenges, however, including severe restrictions on foreign ownership of assets (which limits ECM deals to the domestic market) and a high level of competition. This in turn puts pressure on fees and international institutions seeking to establish a presence in the Kingdom often balk at the knock-down rates accepted by their local rivals. What compensates in the eyes of bankers, however, is the sheer volume of equity issuance.In 2008, the country saw half as many listings as in the previous year, but double the volume thanks to a run of big ticket issues. Among the highest profile deals last year were a SR2bn (US$534m) rights issue in November from telecoms company Mobily, which was 230% covered. This followed on from Mobily's SR5.5bn (US$1.5bn) secondary offer in March.Other deals included the SR6.59bn (US$1.76bn) IPO by industrial group Mohammad Al-Mojil and the SR4.6bn offer by petrochemicals group PetroRabigh, both led by HSBC. Mining company Ma'aden carried out a SR9.2bn (US$2.47bn) privatisation IPO in July that was twice covered and the government exercised a clawback option reducing the institutional tranche to 15% from 37% following strong retail demand.The market is now conspicuously quieter and many bankers do not expect to see activity resume until well into next year. The need to raise capital in sectors such as oil and real estate, which would struggle with investor demand in the current economic climate, is now widely expected to be met through private placements. But the IPO market is not entirely lifeless. Last month saw the completion of offers from four local insurance firms, which some analysts hope will lift sentiment in the broader market.Individually, the IPOs were minuscule but the impact may add up to more than the sum of their parts, especially considering that the offers were many times covered. Al Rajhi Company for Cooperative Insurance was nearly 900% subscribed on its SR60m (US$16m) offer while AXA Cooperative Insurance saw 670% coverage on its SR80m sale. Al Rajhi Company for Cooperative Insurance was more than 700% subscribed on a SR60m sale, while Wiqaya Takaful was twice covered on a SR80m IPO. Some analysts are also suggesting that the successful completion of a large deal outside the Kingdom, in Qatar, may also prove to be a shot in the arm for Saudi ECM.The sale of 40% of Vodafone's Qatari subsidiary worth around US$1bn was

The deal that has been signed was the US$100m five-month bridge loan to fund initial construction on the Abu Dhabi Sewerage Services Company (ADSSC) sewage treatment plant being built in joint venture with Veolia and Besix. The deal is priced at 190bp with fees at around 100bp. The funding banks are Calyon, NBAD and Natixis. The funding is following a similar template to the larger Shuweihat 2 independent water and power project (IWPP) scheme in Abu Dhabi, being developed by ADWEA and Suez. A bridge loan first, given the need to raise money quickly, then a longer-term project finance take-out. The Shu 2 loan was put in place late last year with six banks.Both the ADSSC and Shuweihat 2 long-term loans are now being pitched to banks – ADSSC is a US$400m nine-year mini-perm that terms out into a long-term 20-year financing. Shuweihat 2 is a US$2.2bn 22-year deal half funded by JBIC with commercial banks being asked to stump up the rest. ADWEA, the state power and water utility, is running both fundings. Marubeni is expected to join the Shu 2 team, hence the involvement of JBIC.Both these deals will test the market and provide new benchmarks in the recovery. There is some guidance from the market activity this year as to whether they will be successful. The project finance market globally has been taking stock in 2009. Last year saw record volumes transacted but sentiment dropped dramatically after the Lehman collapse on 9/15. Liquidity disappeared for all but the shortest tenored deals and, of course, project finance is a long-tenored business. Some deals were still finalised – such as Mubadala's Sorbonne university in Abu Dhabi and the Sanmar petrochemical deal in Egypt (profiled in this supplement) – but these were mainly legacy deals pre-9/15.The activity this year has been very much "new era". Sponsors and government-linked entities have been testing what is available from the market and concentrating on getting deals done – rather than aggressively seeking finance. It is in the spirit of bookbuilding and consensus building that both ADSSC and Shu 2 will go out.The two big Gulf project finance deals thus far this year – Ad Dur and the Dolphin refinancing – have proceeded successfully. But they have proceeded slowly, certainly a lot more slowly than they would have done even a year ago. In addition, the terms and conditions of the loans have changed remarkably. The fees and margins are much higher and the tenors are limited. The deals that follow these two will hope tenors can be lengthened, now the concept of longer-term lending has been re-introduced. As for margins and fees, perhaps they will fall too but no-one is expecting a big re-correction downwards.Ad Dur has been very much a book and consensus exercise and it has taken nearly all year to put together. But the finishing line is in sight. The US$1.7bn deal will fund an independent water and power project (IWPP) in Bahrain won by Suez and its local partner GIC last year. The French giant had proposed a long-term financing but had to alter its plans following 9/15 and, after a market sounding, offered the banks market an eight-year mini-perm in January with high pricing, compared with what could have been achieved a year ago. To compensate Suez for the extra financing costs, the Bahrainis have increased the power and water purchase agreement (PWPA) by five years in return for a share of the gains from refinancing the loan that is now being put in place. However, no tariff increase has been agreed.The pricing initially offered to banks was 250bp flat but even this had to be increased during the spring to 290bp during construction, 315bp for the 2.5 years post-construction then 365bp. The fees remain the same at 200bp to 275bp. The deal has a full cash sweep starting 2.5 years after construction. The debt totals US$1.7bn. Islamic funders are providing US$300m and US Ex-Im, US$200m. The US$1.2bn commercial bank tranche is one-third covered by KEIC. The 15 banks currently in

The race between the A-list investment banks to land big-sum Gulf tickets has intensified as more borrowers in the region plan to access the international bond markets to finance ambitious growth projects. Lead managers are using various tactics from innovative bond structures to relationships to target the untapped investor base. About US$15bn of potential supply is expected from Abu Dhabi alone, while Qatari companies are planning to attract more than US$15bn through the sale of bonds. New issues from other Gulf states are likely to follow, Bahrain being one of them as it gears up to price its US$500m five-year sukuk this month. Then, one senior fund manager in New York warned, "investors may become engulfed by Gulf supply". Impressive startAs April began, on the first day, the Emirate of Abu Dhabi (Aa1/AA/AA) launched the then largest sovereign bond from the Gulf Co-operation Council when it priced its dual-tranche US$3bn in line with revised guidance. Abu Dhabi priced a US$1.5bn 5.50% five-year deal at 99.346, or 400bp over US Treasuries, down from the initial guidance of 425bp, yielding 5.652%, while a US$1.5bn 6.75% 10-year offering came in at Treasuries plus 420bp, below the previous price talk of 437.5bp, with a reoffer price of 99.242, yielding 6.856%. Citigroup, Deutsche Bank and JP Morgan acted as join bookrunners, while Abu Dhabi Commercial Bank and National Bank of Abu Dhabi came in as co-leads. These bonds are a part of the Emirate's US$10bn Global MTN programme.A day later, the State of Qatar (Aa2/AA–) followed with a similar size when it printed its increased US$2bn 5.15% five-year offering at 99.90, or Treasuries plus 340bp, below the initial guidance of 350bp, yielding 5.171% and a US$1bn 6.55% 10-year deal at 380bp, below the previous price talk of 387.5bp, with a reoffer price of 99.682, yielding 6.594%. Barclays Capital, BNP Paribas and Goldman Sachs led the deal, while Qatar National Bank acted as co-lead.Unofficial guidance for the Qatar deal was heard at 330bp over Treasuries for the five-year deal and at Treasuries plus 350bp for the 10-year offering. Then some bankers in the Gulf had been too optimistic, however, as they expected the Qatari five-year sovereign tranche to price in the high 200bps.When the deals were announced, there were concerns about exactly how much liquidity would be available to the sovereigns and whether the market would have enough appetite for two benchmark offerings in rapid sequence; the high quality of the credits and the scarcity feature attracted huge interest in both trades. However, the Emirati capital – whose debt to GDP ratio at the time was less than 1% – priced outside of lower-rated Qatar. Apart from the CDS difference, Qatari protection then being 80bp–100bp inside Abu Dhabi's, the Dubai factor was named as one of the reasons for the pricing results.As the United Arab Emirates' capital, Abu Dhabi is obliged to rescue the former boom-sheikhdom Dubai in the case of it failing to pay its US$80bn debt, which, in turn, would move Abu Dhabi's debt to GDP ratio to 20%. Last, low commodity prices were playing against the petrochemical-driven Emirate despite its having stress-tested oil down to US$30m per barrel. Abu Dhabi is the home to the world’s largest sovereign wealth fund – Abu Dhabi Investment Authority – worth about US$875bn and contributing 90% to the UAE's budget. On the other hand, the world's largest liquefied natural gas exporter, Qatar, has lower geopolitical risks in the region and its gas revenues are set to double, with the rarity factor along with stronger fundamentals playing their role in pricing.Towards the end of April, on the 29th, Mubadala Development Company (Aa2/AA/AA) tightly priced its maiden two-part US$1.75bn Reg S/144a benchmark. The investment firm, which is 100% owned by the Abu Dhabi government, was the first Gulf corporate to tap the Eurobond market this year, and indeed the first since last summer, when on July 24 2008 the Abu Dhabi Nati

As the saying goes: "In the land of the blind, the one-eyed man is king." So in the current cash-strapped global economy that we have all found ourselves in during the last few months, anyone with spare cash has found themselves treated like royalty. This has meant that the ruler of Abu Dhabi, Sheikh Khalifa bin Zayed Al Nahyan, and the vast sums of petrodollars that his oil-rich emirate accumulated when oil prices were booming and breaking records, has been treated particularly well. Everyone from banks to football teams have been courting Middle Eastern oil wealth to help repair tattered balance sheets and rescue them from the financial abyss; meaning the likes of Abu Dhabi and its GCC brethren have been able to pick up stakes in global corporates at very preferential rates.Such preferential rates and depressed valuations have meant a number of prestigious corporate names now find themselves partly or fully controlled by the Al Nahyan family. But while Abu Dhabi is the name that every businessman and woman associates with this recent acquisitions spree, much of it can be attributed to one name under the Abu Dhabi umbrella: the International Petroleum Investment Company (IPIC). Over the past few months, this 100% government-controlled fund has been the busiest architect of M&A activity in the Gulf. These purchases have not only allowed Abu Dhabi to extend its international reach but have established IPIC as a player with global ambitions.IPIC has come a long way since it was established by decree in 1984 as a 50/50 joint venture between the Abu Dhabi Investment Authority (ADIA) and the Abu Dhabi National Oil Company (ADNOC). Brought under direct government control two years later, it has since moved towards developing Abu Dhabi's influence in the global hydrocarbons business by investing in different downstream projects both in the UAE and elsewhere in the world. Its modus operandi is to invest in a minority stake, often between 25% and 40%, as a long-term strategic player. While much of its international investments have only occurred in the last couple of years, it has long been involved in important downstream projects at home. The biggest current scheme is the construction of the US$1bn Abu Dhabi Crude Oil Pipeline, which is due to begin operations in September 2010. However, it is also due to have a 40% stake in Chemicals Industrial City, along with the Abu Dhabi Investment Council (40%) and ADNOC (20%). The first stage of this project, the US$15bn–$20bn Naphtha unit, is currently looking for a financial adviser.As well as the domestic projects it is involved in, the importance of IPIC to Abu Dhabi can be seen by looking at its board members. Its list of directors contains the majority of the upper echelons of the Abu Dhabi business community, including four members of the Supreme Petroleum Council. It is headed by the UAE Minister of Presidential Affairs, Sheikh Mansour Bin Zayed Al Nahyan, and also includes the CEO of ADNOC, Yousef Omair Bin Yousef, the Undersecretary of the Abu Dhabi Department of Finance, Hamad Al Hurr Al Suwaidi, and the UAE Minister of Energy, Mohamed bin Dha'en Al Hamili.Despite its high status within Abu Dhabi and the wider UAE, it has only been in the last couple of years that IPIC has asserted itself on the world stage. Prior to 2008, it had slowly built up stakes in specific partners, including Austria's OMV and Borealis (the latter controlled in a 65/35 split with OMV) and South Korea's Hyundai Oilbank. It also agreed to acquire a 20% stake in Japan's Cosmo Oil in September 2007 for ¥89.8bn (US$776m).However, it has been in the last 18 months that IPIC has undertaken a rapid expansion of its investment portfolio. As well as adding further hydrocarbon assets, it has begun to branch out into other areas, including chemicals and investments. Such moves are indicators of IPIC's increasing stature within Abu Dhabi and its growing role in shaping Abu Dhabi's global economic footprint.The shift from

At the end of April 2009, with the global equity markets still in the depths of despair and the IPO window largely closed for all but the bravest of issuers, Vodafone Qatar QSC defied the sceptics and closed its QR3.4bn (US$940m) IPO. Despite being targeted at just Qatari individuals and Qatari-owned institutions, the offer was fully covered, with additional unsatisfied institutions unable to receive shares due to an offer structure designed to skew allocations towards Qatari retail investors.At the close of the subscription period, the IPO was the largest globally in the year to-date, the second largest IPO ever in Qatar and the first multi-national company to be offered on the Doha Securities Market (DSM). HSBC Bank Middle East acted as joint financial adviser and joint lead manager with Qatar National Bank, and Denton Wilde Sapte acted as the company's legal counsel.BackgroundThe IPO was always inevitable and the requirement for Vodafone Qatar (the company) to offer 40% of its share capital to the public and restrict the offering to Qatari residents was written into the terms of the second Public Mobile Telecommunications Network and Services Licence agreement (the license). This licence was awarded on December 10 2007 by a consortium consisting principally of Vodafone Group PLC, the leading global provider of telecommunication services, and Qatar Foundation, "a private institution of public utility" founded by His Highness the Emir Sheikh Hamad Bin Khalifa Al-Thani. The company was incorporated on April 22 2008 and began rolling out its operations in March 2009. The second mobile licence finally allowed a new mobile operator into the State of Qatar following 22 years of monopoly by Qatar Telecom.Investment caseThe investment case offered to investors was driven by a number of factors.• Vodafone Qatar was entering a buoyant market with average revenue per user or ARPU rates among the highest in the world and a strong outlook driven by a growing and wealthy population in a country with a positive macro outlook and a wealth of natural resources.• Vodafone Qatar had the support of two key shareholders. Qatar Foundation, a partner with local connections and market knowledge, and Vodafone Group with its international experience and ability to leverage on its global product offering, brand, services and know-how.• The management team that had been put in place had a wealth of knowledge in the telecoms space and were supported by a very well connected board of directors.Equity market environmentThe key over-riding issue with regards to the IPO was always going to be the state of the equity markets and the challenge in establishing the level of potential demand for what was a large offering in a difficult environment. The MENA equity markets in the first quarter of 2009 remained aligned to the global markets – highly volatile and weak.The DSM fell by more than 25% in the first three months of 2009 and, for a short period in February, was down more than 65% from its peak just eight months previously. Given the structure of local deals that are principally targeted at retail investors, there is a limited ability to sound out the market on potential demand and a judgement on the depth of potential demand is based on an understanding of local flows, low level discussions with the large Qatari-based families as well as crucial experience on investor behaviour gained from previous deals.Offer structureIn addition to the unfavourable market conditions, a significant challenge in structuring the offering was to ensure there was a balance between making the IPO a success and that the offering was covered, while at the same time limiting the impact on the DSM, which typically experiences significant liquidity outflows ahead of an IPO when local investors sell existing positions to free up cash to subscribe to the IPO.The final structure that was approved by the Qatar Financial Markets Authority (the QFMA) involved offering shares to Qatari i