IPOs and rise in debt deals to boost Citi’s Middle East and Africa business

Exclusive: The third-largest US lender expects double-digit revenue rise in Middle East and Africa markets this year, driven by core transaction banking and wealth management businesses

Ebru Pakcan, head of Citigroup Middle East and Africa, says the 29-market cluster is the fastest growing region for the lender globally, Chris Whiteoak / The National

The continued momentum in investment banking deals and a pick-up in debt capital market transactions will help Citigroup’s Middle East and Africa business to post double-digit revenue growth this year, a senior executive has said.

The 29-market Middle East and Africa cluster is the fastest-growing region around the world for the US lender, Ebru Pakcan, head of Middle East and Africa cluster, told The National in an interview.

Its core business segments – including banking, markets, services and wealth management operations – will help it to maintain the growth trajectory of the past five years, she said.

The sharp increase in initial public offerings across the broader Middle East, especially in the six-member GCC economic bloc, and Egypt’s plan to partly privatise 32 of its state-owned enterprises have strengthened the investment banking deal pipeline.

Growth is also supported by the rising number of mergers and acquisition deals amid a surge in foreign direct investment flows in the Middle East and Africa region.

The increasing appetite of sovereign and corporate borrowers to tap into debt markets despite higher interest rates will also increase the volume and value of transactions this year for Citi, she said.

“In terms of the banking and capital markets [and] services, while the last two years have been very, very challenging, broadly speaking, for investment banking opportunities across the globe, in the GCC, one could argue that 2021 was probably one of the best years and 2022 was just right behind 2021,” Ms Pakcan said.

Debt capital markets in the region have also been very active this year and “I suppose a lot of people have stopped the wait-and-see approach”, she said.

“I feel a lot of people came into this year thinking, OK, we can no longer wait [as] there's no point in waiting. This [higher interest rate] is the new normal.”

She expects GCC economies, which have maintained a robust pace of expansion despite global economic headwinds, to continue as the driver of client business growth for Citi in the wider region in 2023.

Continuing structural reforms, rising foreign direct investment, booming debt and equity capital market activity, as well as the launch of big projects are all supporting economic fundamentals, which in turn are opening more business avenues for Citi in the region, she said.

“It's very difficult to predict exactly what type of [growth] figures there are going to be but if it's not double digit, then it's going to be very high single digit,” she said, when asked about projected growth over the next two years.

“This has been the trend in emerging markets for a long time.”

With an increase in population, a push for economic diversification, as well as portfolio investors' interest in the region, “I would imagine that this will continue to be a part of the world that will grow faster than the rest of the world”.

The hydrocarbon-rich economies of the GCC have bounced back strongly from the coronavirus-induced slowdown, spurred by government stimulus measures, as well as continued spending on infrastructure projects and mega developments that have boosted economic activity.

Higher oil prices have also helped the countries to shore up fiscal buffers and fund their economic diversification agenda.

Saudi Arabia, Opec’s top oil exporter and the biggest Arab economy, grew by 8.7 per cent in 2022 – the fastest among G20 countries.

The gross domestic product of the UAE, the commercial and trading centre of the Middle East, grew by about 7.6 per cent last year, the highest in 11 years.

It is projected to expand by 3.9 per cent in 2023 and 4.3 per cent in 2024, according to data from the UAE Central Bank.

The solid economic fundamentals and markets flush with liquidity have also driven listings activity in the Middle East and Africa region.

Middle East IPOs raised more than $23 billion in 2022, the highest aggregate value for the region after 2019, when Saudi Aramco went public in a $29 billion offering.

It is a sharp rise from the $7.52 billion raised from 20 deals in 2021.

Abu Dhabi alone accounted for 14 per cent of all listings worldwide in the first quarter of 2023, consultancy EY said in its Global IPO Trends report in March.

UAE stock markets attracted $3 billion in listing proceeds during the period, ranking the Emirates third worldwide, it added.

Citi was a beneficiary of the rise in equity capital market activity as it led several transactions, including the $6.1 billion listing of the Dubai Water and Electricity Authority, the largest UAE IPO, and the $2 billion Borouge public float on the Abu Dhabi bourse.

It also led the $769 million listing of Adnoc Logistics & Services in May and the $1.3 billion float of Saudi Aramco Base Oil Company, better known as Luberef, on the Tadawul stock exchange last year.

On the debt capital market side, Citi was part of Saudi Arabia’s $10 billion multi-tranche offering, the Public Investment Fund’s debut $3 billion issuance, Egypt’s inaugural $1.5 billion sukuk and Mubadala’s $1.5 billion dual-tranche issuance, according to Citigroup data.

Currently, a combination of “a lot of different positive things” makes this part of the world attractive for investors – and what “interests our clients, interests us”, Ms Pakcan said.

Citi’s M&A advisory business has also picked up pace in recent quarters.

The lender was involved in several large deals, including Adnoc’s acquisition of a 24.9 per cent stake in OMV from Mubadala Investment Company last year, Abu Dhabi Ports Company’s purchase of an 80 per cent stake in Global Feeder Shipping and ADQ’s merger of its aviation assets with Abu Dhabi Aviation.

Ahli United Bank’s $11.6 billion merger with Kuwait Finance House and Taqa’s renewables and green hydrogen joint venture with Adnoc and Mubadala are among other recent deals Citi has advised on, according to the data.

“IPO and M&A activity really has not stopped … it has only been booming,” Ms Pakcan said.

Citi will remain focused on boosting its services business, which includes transaction services, cash management, trade financing and security, as well as custody and clearing services.

It was the most profitable business for Citi across Middle East and Africa cluster last year, she said.

Growth this year will also be supported by the bank's wealth management operations, with the UAE being one of the top centres for Citigroup's affluent clients globally.

Citi’s deposits and investments book has grown by 17 per cent on an annual basis while its assets under management have expanded by about 12 per cent annually over the past five years.

The bank, which has been expanding its team to serve wealthy clients, aims to double the number of its relationship managers to 110 by the end of 2025, as revenue is set to grow 18 per cent on an annual basis between 2021 and 2025, Ms Pakcan said.

“Wealth management, given the focus that we have … is definitely seeing growth,” she said.

“You're going to see a lot more alternative investments, private equity-type investments [and] more sustainability-indexed investments”, as clients continue to diversify their investment priorities, she added.

Citigroup, which has a presence in 90 markets globally, is looking to obtain a full banking licence in Saudi Arabia to boost its institutional business.

The lender, which currently operates in the kingdom through a Capital Markets Authority licence, has yet to apply for the new licence that will allow it to take deposits from institutional clients, she said.

Ethiopia and Uzbekistan are the other two markets on Citi’s radar in the wider region, she added.