Dubai: The UAE investment banking scene is getting active again with deal flow – and the prospect of big bonuses making a comeback.

High oil prices, a surge in IPOs, a steady rise in mergers and acquisitions, and improving prospects in the loan syndication market thanks to the post-Covid economic recovery are warranting more business investment. The investment banking space in the GCC includes a plethora of services such as equity capital markets (ECM), debt capital markets (DCM), loan syndications, mergers and acquisitions activities , private equity and brokerage.

GCC’s investment banking business peaked in 2007 with total fees of $5.5 billion. The 2008 global financial crisis saw more than a decade of low transaction flows and fee income for investment banks. Despite limited improvement in DCM and M&A deals, activity was relatively subdued, leading many of these banks to downsize or relocate GCC-focused staff to London, Singapore or Hong Kong.

“Now things are looking up and banks are increasing their business and staffing in the region,” said an investment banker who recently moved to Dubai from Singapore.

Saudi Aramco as catalyst

Saudi Aramco’s $30 billion fundraising through an IPO in late 2019 marked the start of a change in the fortunes of Western and regional investment banks. Major privatization efforts and economic diversification are once again stimulating opportunities.

Companies such as JPMorgan Chase, Citigroup, Deutsche Bank and HSBC remained active in key segments such as syndication, bond and sukuk issuances and mergers and acquisitions in the region.

“Low oil prices and subsequent budget deficits have led to a pick-up in DCM activity, particularly the sovereign space over the past two years,” a Deutsche Bank executive said. “Going forward, economic diversification needs, private and public sector IPOs are likely to help deal flow in the ECM and M&A space.”

change of fortune

A number of local and regional banks formed investment banking teams in the mid-2000s to take advantage of the boom in cash and stock markets. It was Saudi Aramco’s IPO that breathed new life into regional investment.

Regional banks such as the National Commercial Bank of Saudi Arabia, Al Rajhi Capital, Banque Saudi Fransi, First Abu Dhabi Bank, Riyadh Bank and SambaCapital played an important role in the IPO.

Data shows that UAE investment banks are also on a winning streak. Emirates NBD Capital (EMCAP) has led a number of historic deals in terms of deal value and deal volume, in debt and equity capital markets and loan syndications in 2021.

“2021 has been a banner year for us, clearly demonstrating the strength of our diverse and holistic product offering,” said Mohammed Al Bastaki, CEO of Emirates NBD Capital.

A stock boom

In the first quarter of 2022, GCC exchanges recorded their biggest quarterly gains since 2009, propelled by a rally in the oil market. The MSCI GCC index, which mirrors the performance of indexes in the region, rose 17.7% last quarter, according to a report by Kamco Invest.

Bankers say market valuations and liquidity will clearly boost ECM activity, supported by a strong IPO pipeline. Last year, Abu Dhabi listings of ADNOC Drilling and Abu Dhabi Ports boosted commission income for local investment banks. Dubai’s efforts to list 10 public entities on the Dubai Financial Market will clearly benefit these banks.

DCM lull?

While IPOs and syndications are expected to maintain momentum, analysts expect to see a lull in DCM activity, primarily bond and sukuk issuances largely driven by rising yields and falling stocks. financing needs of GCC sovereign borrowers.

“We expect emissions to decline as government deficits continue to narrow due to higher oil prices, lower coronavirus-related spending and picking up economic activity in major regions. Sukuk-issuing countries,” said Alexander Perjessy, senior vice president and analyst at Moody’s.