Citigroup, which counts among its shareholders billionaire businessman Prince Alwaleed bin Talal detained this month in a crackdown on corruption by Saudi Arabia, will be fully operational in the kingdom in the first quarter of 2018 after an absence of more than a decade. It is looking to capitalise on opportunities in debt and equity capital markets, the lender's regional chief executive said.
“Saudi, is a country where we wanted to get back for a number of years,” Jim Cowles, Citi’s Europe, Middle East and Africa chief executive said at a media summit in London. “It’s something we are looking forward to.”
Citigroup, which was granted a Capital Market Authority (CMA) licences in April, will offer a full range of investment banking, debt and equity capital markets and research services to institutional clients.
Citi lost access to the largest Arab economy when it sold its stake in Samba Financial Group in 2004. The US-headquartered bank, which has operations in more than 160 countries and jurisdictions, will initially have 15 to 20 people present on the ground in the kingdom.
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Saudi Arabia, Opec’s biggest oil producer and world’s top crude exporter has become an attractive market for the foreign banks, as Riyadh continues to overhaul economy after oil prices fell from the mid-2014 peak of US$115 per barrel.
The country, which still relies heavily on the sale of hydrocarbons for revenues, aims to increase the private sector's contribution to the economy and plans to privatise state assets that include energy giant Saudi Aramco. Riyadh has also tapped the local and international debt capital markets in the last two years to shore up finances and bridge its budget gap.
Citigroup has worked closely with the Saudi Arabia on debt issuances and was the global coordinator on the kingdom’s debut $17.5 billion bond offering 2016. It also worked as global bookrunner in the Riyadh’s sukuk offering.
Mr Cowles declined to comment on the recent political moves in the kingdom and the anti-corruption campaign in which some of the high profile businessmen and members of the royal family detained.
“We have our licence as far as capital market business [is concerned] we will continue to build that capability, we will continue to be positive in terms of economic growth in the country and continue to be positive on the business opportunities in the country,” he said.
Citigroup, which has close to 200 million customer accounts, had a record 2016 and expects its business to do better in 2017.
The “Middle East, has been very strong. This year it is so far ahead of last year and so we look forward to another record year based on what we have seen in the first ten months,” he noted.
The drop in oil prices, he said has changed the financing needs of many clients, whether sovereigns in the Arabian Gulf region, financial institutions or the local companies.
“They had to access capital markets and they had to look at privatisation and look at other way of getting the fiscal balance,” he said. In many ways, what is leading up to opening up of Middle East in terms of capital markets [business], and there’s more diversification in terms of the economy.”
These, he said, are positive developments which have boosted the bank’s business in the region.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
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