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Senior Associate - Private Equity
Industry: Finance
Location: Dubai, UAE -
Head of Syndications MEA
Industry: Finance
Location: Dubai, UAE
Banking in the GCC
by ArabianBusiness.com staff writer on Sunday, 01 July 2007
Retail, property and telecoms - the wind of change has already thoroughly swept through these industries in the Gulf with more malls, iconic destinations and mobile operators than we know what to do with. Banking, however, is the industry where your attention span should, if it isn't already, be firmly fixed for the next two to three years. Over this time period the industry will change dramatically to become one of the most dynamic, not just in the Middle East but in the world.
Some may point to the GCC banking industry as immature, however many institutions have been operating since the 1950s and 60s and have firmly established positions in their domestic, and increasingly, foreign markets. The recently rebranded Mashreq, for example, has recently celebrated its 40th anniversary. Where the maturity has yet to arrive, however, is in capital markets; asset management; securities; brokerage; the stock markets and exchanges such as commodities and their intricacies as well as in the investors themselves; how they invest; what they invest in; how in fact they invest and crucially whether they make an adequate return on their initial investment.
Where maturity has yet to kick-in is in the number of finance houses spread across the Gulf. There are 46 banks in the Emirates alone, 15 in Qatar and a growing band of others in Bahrain, Kuwait and, naturally the biggest market, Saudi Arabia, where alongside the old favourites such as SAMBA, an increasing number of foreign financial institutions are beginning to set up base and play their high spending, highly experienced hand.
This week, Arabian Business examines some of the leading players in the Gulf's banking and finance sector, what they have done in 2006, and most importantly what they plan to do next.
Kingdom of Saudi Arabia
SAMBA Financial Group
SAMBA was formed following a Royal decree dated on February 12, 1980 to take over the then existing branches of Citibank in Riyadh and Jeddah. Citibank had opened its Jeddah branch in 1955 and its Riyadh branch in 1966.
SAMBA was formed in accordance with a programme adopted by the Kingdom in the mid-1970s under which all foreign banks were required to sell majority equity interests to Saudi nationals.
The principal terms and conditions of the deal were: 44.5% of the equity was sold to the Saudi public for cash, under rules, which favoured the allocation of shares to small Saudi subscribers. Share allocations were made to an estimated 166,000 individual subscribers.
An additional 15.5% of the equity was sold for cash to a selected group of Saudi founders, including the original Saudi members of the board of directors. Saudi nationals, therefore held 60% of the total share capital. Citibank acquired the remaining 40% of the equity in exchange for the assets of its Riyadh and Jeddah branches. Citibank entered into a technical management agreement under which it agreed to manage the new bank.
This agreement was provided that Citibank would second staff to the new bank and provide technical support and that it would not receive compensation for these services (other than as a shareholder) except for reimbursement of actual expenses. At end of 1991, Citibank sold part of its equity ownership in SAMBA to two Saudi national agencies for social welfare. As a result, 70% of SAMBA's share capital was held by Saudi nationals and institutions and Citibank retained 30% ownership of the share capital of Samba.
On July 3, 1999 SAMBA merged with the United Saudi Bank (USB) by exchanging one new share in SAMBA for each 3.25 existing shares in USB. The merged bank retained the SAMBA name and there was no change in the composition of the board of directors. The merger did not affect the technical management agreement with Citibank. This resulted in Citibank holding 22.83% of the shares of the merged bank. However, near the end of 2002, Citibank sold 2.83% of its shareholding to a Saudi agency. As a result, Citibank holds 20% of the share capital of SAMBA.
On September 14, 2003 Samba moved to full local management, culminating a transition plan previously agreed with Citigroup. SAMBA was the first bank to offer priority banking (gold and diamond); phone banking; credit shield; saving linked insurance; cash deposit through ATMs; speed cash remittance service and automated signature verification. It was also the first bank to establish a dedicated investment department, introduced the first local equity fund and the first fund, (SAIF), open to overseas investors and listed on the London Security Exchange.
Latest: France's BNP Paribas plans to issue medium-term bonds in Saudi Arabia, valued in Saudi riyals. The bank has appointed the SAMBA Financial Group as the lead manager for the issue. The value of the bonds has not been revealed.
Meanwhile, a consortium consisting of Suez Energy International, Gulf Investment Corporation and the Arabian Company for Water & Power Projects, has completed limited recourse financing for the Marafiq Independent Water and Power Project (IWPP) in Jubail, northeast of Saudi Arabia. The financing is in five tranches: a 22-year loan of US$1.5bn, an export facility of US$645m provided by the Korea Export Insurance Corporation, an Islamic Ijara facility of US$600m, an equity bridge facility of US$496m and a debt service reserve account facility of US$130m. The syndicate is led by BNP Paribas, Gulf International Bank and SAMBA Financial Group, together with Bank Saudi Fransi, Arab National Bank, Saudi British Bank, Saudi Hollandi Bank, Arab Petroleum Investments Corporation (Apicorp), Bayerische LB, Bank Of Tokyo-Mitsubishi UFJ, Calyon, Dexia Crédit Local, DZ Bank, Fortis Bank, HSBC, ING Bank, KBC, KfW, Mizuho, Natixis, Royal Bank of Scotland, Sumitomo Mitsui Banking Corporation, Société Générale, Standard Chartered Bank, West LB, Arab Bank, Mashreq, Shinhan Bank, and Woori Global Markets Asia.
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