By Matthew Martin
JPMorgan Chase & Co. sees initial public offerings and M&A driving Middle East deals this year in what the U.S. bank expects to be its busiest in the region.
Private sector mergers and state sell-offs as part of privatization plans will accelerate, while corporate bond sales are also likely to rise, Sjoerd Leenart, the bank’s global head of corporate banking and regional head for Central & Eastern Europe, Middle East and Africa, said in an interview.
“There is a great need for companies to become more efficient, so we will see consolidation as one of the themes driving M&A,” Leenart said. “In equity markets we see levels of activity are picking up, particularly across the U.A.E. and Saudi Arabia. Across our teams we are absolutely very busy at the moment with a lot of deals being worked on.”
Regional deal activity is already showing signs of picking up this year as slower economic growth encourages more tie-ups between firms and governments fund budget shortfalls with bond sales. Issuance is already off to a record start with $23 billion of debt raised as borrowers rush to lock in costs ahead of increases in U.S. interest rates. Companies are also hiring banks to advise on M&A deals after they reached their lowest level in 2017 for at least 12 years, according to data compiled by Bloomberg.
‘Difficult to Close’
Even though the signs are positive, “mergers in the region can be difficult to close and take a long time,” Leenart said.
Several companies that announced merger or takeover plans last year are yet to agree terms. HSBC Holdings Plc-backed Saudi British Bank and Alawwal Bank, in which Royal Bank of Scotland Group Plc owns a 40 percent stake, started merger talks in April, but haven’t completed a deal. Saudi Arabian hospital operators Al Hammadi Co. for Development & Investment and National Medical Care Co. started preliminary merger talks in August, but haven’t agreed a deal yet.
M&A across the Middle East and North Africa fell to the lowest in over a decade last year
JPMorgan was one of the first advisers hired in 2016 for Saudi Aramco’s initial public offering, which could be the largest share sale ever, people familiar with the matter said at the time. The U.S. lender is also advising on the IPO of Saudi Arabia’s Acwa Power, people said earlier this month.
Saudi Arabia Plans
In Saudi Arabia, where JPMorgan has about 70 people, the bank is setting up a custodian business for equity trading as the kingdom’s stock exchange forges ahead with efforts to win emerging markets status this year. The division will be operational in the second quarter and should encourage more of the lender’s international clients to trade Saudi stocks, Leenart said.
JPMorgan has been the Middle East and North Africa’s top arranger for bond sales for the past two years as issuance reached record levels of $81 billion and $101 billion, according to data complied by Bloomberg.
The U.S. lender last year helped arrange bond sales for regional government’s including Abu Dhabi, Saudi Arabia, Lebanon, Egypt, Bahrain and Kuwait. It’s also among banks hired by Saudi Arabia for a bond sale that could happen this month, according to people familiar with the matter.
While sovereign debt sales could fall this year as a recovery in oil prices leads to smaller deficits, companies “may a bit more active as they try to get ahead of interest rate rises,” Leenart said.