x Abu Dhabi, UAETuesday 25 July 2017

Middle East mergers and acquisitions tumble

The value of mergers and acquisitions in the Middle East fell by almost 50 per cent last year according to a survey by Thomson Reuters.

The value of mergers and acquisitions in the Middle East fell by almost 50 per cent last year according to a survey by Thomson Reuters. The abrupt fall in financial activity was most pronounced in the issuance of new capital, which dropped 81 per cent to US$6.9 billion (Dh25.34bn) last year after peaking at $36bn. The figures reflect the degree of severity of the fallout from the financial crisis in regional capital markets. The collapse of Lehman Brothers in September 2008 signalled the end of a five-year, oil-fuelled boom that saw Gulf states spend massively on infrastructure, tourism, trade and finance.

Last year, the value of mergers and acquisitions fell 40 per cent to $12.7bn from a year earlier. At the peak of the boom in 2007, such deals exceeded $40bn in value. Overall fees paid to investment bankers and advisers fell 46 per cent to $600 million last year. "These have undoubtedly been tough times worldwide with the investment banking business feeling the effects," said Basil Moftah, the managing director of Thomson Reuters, Middle East and Africa.

"Looking ahead, the road may remain bumpy for a while," he said, adding that an increase in investment banking activity was necessary "for a sustainable return to growth". Initial public offerings across the Middle East and North Africa plunged 84 per cent to just above $2bn last year as companies remained reluctant to list new shares in light of low valuations, according to data from the Zawya IPO Quarterly Bulletin.

Seventeen IPOs raised $2.14bn in the region last year. The new listings were limited to four markets: Saudi Arabia; Qatar; Tunisia and Syria. This compares with $13.17bn worth of regional IPOs in 2008. Saudi Arabia, the Middle East's largest economy, accounted for 11 of the 17 IPOs. More than half of the deals were in the financial sector. At an overall $21.5m, HSBC raked in the most fees in debt and equity capital markets. In mergers and acquisition fees, Credit Suisse came top with $27.3m, while Calyon headed the list of syndicated loan fees with $11.3m.

The top Middle Eastern acquisition was a $9.5bn investment by Qatar Investment Authority, which increased its stake in Volkswagen and Porsche to 17 per cent. The largest M&A deal targeted towards the Middle East was the plan by the government of Iran to divest 50 per cent of Iran Telecommunications to the public for $7.7bn. However, the year brought a revival of bond issuances, which rose 151 per cent to $38.3bn from 2008. In contrast, loans fell 81 per cent to $17.1bn.

Goldman Sachs topped the overall debt rankings, facilitating the sale of five bonds worth $3.55bn. The survey called sovereign, government-related and investment grade corporate issues "the one bright spot for investment banker fees" last year. In the UAE, for example, the period of ample funds and large capital inflows came to a sudden halt in late 2008, when it is estimated that international investors pulled out more than Dh180bn.

This forced many companies that had relied on short-term borrowing to finance long-term projects to rethink funding strategies. When international capital markets thawed last spring, it sparked a wave of new bond issuances by sovereigns and related companies. @Email:uharnischfeger@thenational.ae