Investment banks swoop on oil boom cash

DUBAI/LONDON - Foreign investment banks are rushing to cash in on the oil boom in Gulf Arab states with the region's capital market surging and local investors scouring the globe for deals.

Some banks are gearing up for the launch on September 26 of the new Dubai International Financial Exchange, trumpeted by local officials as a project that will transform the Gulf emirate into another New York or London.

Even for those who are cautious about such ambitions, there is no denying the surge in share issues, mergers, and other business for investment banks.

Bankers estimate there will be more than US$150 billion in project finance alone over the next five years, if oil prices remain strong, from Gulf Arab states -- Saudi Arabia, Qatar, the United Arab Emirates, Bahrain, Kuwait and Oman.

In the UAE, trading volume soared 343 per cent on the Abu Dhabi stock market in 2004 and 1,238 per cent on the Dubai market.

The price of a barrel of crude has doubled in a two-year rally, driven by US and Asian demand, to touch levels in real terms not seen since 1980, the year of the Iran-Iraq war.

Middle Eastern oil exporters are estimated to have netted over US$1 trillion in oil revenues in the past five years.

There are questions about how long the boom will last but many banks find the potential rewards irresistible.

While foreign banks have always vied for a piece of the pie in the world's biggest oil-exporting region, a mix of factors, including soaring crude prices, is changing where bankers sit.

"Traditionally, investment banking has been done by top tier international banks offshore, based in London," said Omar Al-Salehi, Middle East head at UBS Investment Bank.

"The region is changing and there are more deals, with the higher oil price and more privatisation, so now people are reviewing whether to put bankers on the ground."

Deutsche Bank is the latest arrival, announcing it would set up an investment banking arm in Riyadh. In the last three months, Citigroup has moved two senior bankers to Dubai from London.

This month HSBC opened an investment banking unit to capitalise on the billions of dollars of state investment projects expected in Qatar.

"There has been an increase of demand for financial analysts in the region both from within the UAE and overseas for foreign banks," said Hassan Yousaf of bayt.com, a regional recruitment agency.

Foreign banks are already big players in the region, taking up most of the top 10 positions in areas such as project finance, debt capital markets and merger and acquisitions advisory, according to data provided by Dealogic.

- REUTERS