Kuwait Financial Centre “Markaz” recently published the executive summary of its report on GCC Investment Banking. In this report, Markaz analyzes the status of GCC Investment Banking by examining four streams of revenue; i) Equity Capital markets (ECM), ii) Debt Capital Markets (DCM), iii) Loans, iv) Mergers and Acquisitions. The report also enumerates the current trends favouring the GCC Investment Banking and examines the challenges for Investment Banking space in GCC. Additionally, Investment Banking fees for Middle East (ME) region and also at Global scale have been examined and a list of top global investment banks have been presented on the basis of fee earned.
Investment banking activity in the GCC reached its peak in 2007 and witnessed decline during the economic crisis until 2009. While, a recovery has been noted in the recent times; GCC investment banking still faces many challenges ahead.
While the fees from ECM underwriting in 2012 for the ME region saw an increase of 23% over 2011, ECM issuance in 2012 decreased by 5% over 2011 and reached USD 9.4Bn. Follow-ons and IPO’s accounted for 77% and 21% of ECM activity in 2012 for the ME region. GCC region saw a significant IPO activity in 2012. The GCC raised USD 1,685.14Mn in capital from 9 IPO issues in 2012. Industrial manufacturing was the most active sector for IPO issuance in the GCC region. The overall ECM activity in the ME region and the IPO activity in the GCC region trails behind its historical levels.
GCC entities issued USD 31bn worth of conventional bonds in 2012. UAE was the largest issuer of conventional bonds in 2012. Financial Services sector and Governmental Institutions are among the largest issuer of bonds in GCC. The sukuk market continued to perform well in 2012 as well and touched new highs with an issuance of USD 24.2Bn in 2012.
The loan market saw a bounce back in 2012 with volume of loan deals estimated at USD 75.79Bn in 2012. Most deals signed in 2012 were Project Finance loans.
The GCC region M&A based on target nation considering only completed deals reached USD 13.11Bn during 2012. Mining and Metals became the leading sector in GCC.
Overall, 2012 was not a bad year for Investment banking activity in GCC, when compared with 2011, with many segments recording an increase in activity. This scenario is quite different from 2011 when many segments recorded a decrease in activity. Some trends continue to favour GCC Investment Banking and the fees from Investment Banking activity has increased across all revenue streams.
Despite these positives, the challenges to Investment Banking in GCC are not few. Overall, an uncertain investment climate continues to make it difficult for Investment Banks to justify their headcount. Moreover, international investment banks which have built up the necessary brand recognition in GCC have an edge in terms of attracting talent and ability to network. Erratic deal flow causes value and volume of deals to change significantly from one month to another causing fluctuation in fees and commissions earned from such services. Evolving capital market rules in the region makes it difficult for investment banks to ensure complete compliance across all markets and depressed valuations make it difficult to tap capital markets and also cause bottlenecks in M&A transactions.
Unlike the ME region, the fees from Global investment banking activity in 2012 recorded a decline across all revenue streams, except for DCM underwriting.
JP Morgan retained its positions as the top global investment bank in terms of overall investment banking fees.
Kuwait Financial Centre S.A.K. 'Markaz', established in 1974 with total assets under management of over KD 1.04 billion as of September 30th, 2013, is the leading and award winning asset management and investment banking institution in the Arabian Gulf Region. Markaz is listed on the Kuwait Stock Exchange (KSE) since 1997 under ticker Markaz.