Barclays Sees Wealth Funds, Bank Deals Driving Mideast M&A

(Bloomberg) -- Barclays Plc sees bank mergers and sovereign wealth funds' technology investments driving Middle East dealmaking this year as the region adapts to low oil prices.

“The type of deals sovereign wealth funds are looking for has changed over the years, but they continue to be active,” Makram Azar, chairman for the bank in the Middle East and North Africa, said in an interview in London. Funds are looking at opportunities in new areas, such as technology, as well as traditional sectors, such as real estate and infrastructure where they can get good yields, he said.

Sovereign wealth funds in Gulf Arab states are seeking new sources of income to lessen their reliance on volatile oil markets. Since last year, Saudi Arabia's Public Investment Fund has funneled about $50 billion of the kingdom's reserves into investments abroad, almost all of it into technology. It is said to be committing as much as $45 billion to partner with SoftBank Group Corp. to set up a new $100 billion vehicle to invest in global technology. The fund also invested $3.5 billion in Uber Technologies Inc. last June.

Elsewhere, Abu Dhabi's Mubadala Investment Co. is considering investing $10 billion to $15 billion in SoftBank's fund, people familiar with the plan said in January. Qatar Investment Authority plans to open an office in Silicon Valley to diversify its interests away from oil and gas, and the fund is still studying plans to invest in SoftBank's fund, Chief Executive Officer Sheikh Abdullah Bin Mohammed Bin Saud Al Thani said in March.

Equity markets in the region, which have remained muted for the last couple of years, are showing signs of revival, Azar said in the interview. Emirates Global Aluminium, the largest aluminum producer in the Middle East, selected advisers for an initial public offering that could raise about $3 billion, people familiar with the matter said in March.

Saudi Arabia is aiming to sell as much as 5 percent of shares in Saudi Arabian Oil Co., known as Aramco, as part of a plan by Deputy Crown Prince Mohammed bin Salman to set up the world's biggest sovereign wealth fund and reduce the economy's reliance on hydrocarbons.

Bank Mergers

Consolidation in the region's financial sector will also drive deals, said Azar, who is also chairman of Barclays' Europe, Middle East and Africa banking. “We might expect to see more transactions from the region driven by the need to consolidate or monetize non-core assets."

National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC merged to create the United Arab Emirates' largest bank with $180 billion assets. Qatar's Masraf Al Rayan QSC, Barwa Bank QSC and International Bank of Qatar QSC announced plans for a three-way merger last year. In Saudi Arabia, HSBC Holdings Plc and Royal Bank of Scotland Group Plc's local ventures are exploring a potential merger to create the kingdom's third-largest lender with $78 billion in assets.

Barclays ranks number nine for merger and acquisition deals globally this year, according to data compiled by Bloomberg. The value of deals is up 5.7 percent so far this year to $839.1 billion, according to the data.

Political Uncertainty

While Azar said political uncertainty is the only factor deterring investors globally, an exception is Britain, where the Brexit-driven slump in the pound has made assets cheap enough to stir interest among Middle Eastern buyers.

“With the currency where it is and the global reach of companies here, we are seeing a renewed interest in the U.K. from investors," Azar said.“That is coming from global corporates, sovereign wealth funds and financial investors alike."

To contact the reporter on this story: Dinesh Nair in London at dnair5@bloomberg.net.

To contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Stefania Bianchi, Keith Campbell