COVID: Putting potential of Gulf bankers in context

Reuters reporters on Wednesday March 18th 2020, in an article titled ‘Coronavirus hits Gulf banks’ dealmaking ahead of Ramadan lull‘, are claiming that GCC deal-making activity and banks’ earnings are being negatively affected by the spread of the novel coronavirus and the recent COVID19 regulations. With the sources in the article making the assumption that regional markets will have weak or close to no activity in the months to come, leading up to September-October. This is inaccurate and misleading. These sources also claim that the month of Ramadan results in lack of market activity which is negatively affecting the financial and banking sector of the region, this shows the lack of context being given to regional market deal-making.

I believe this type of reporting is irresponsible and is the result of people who make claims without having real skin-in-the-game. Few perspectives need to be put in place and elaborated upon to clarify the seasonal activity and why some cycles seem quieter than others:

Private equity firms’ and Bankers’ sweet-spots.

Virtually all Bankers in the region are focused on middle and large market companies with transaction sizes greater than US$20 million (AED 73.4 million) and valuations of around US$50 million and up. Their rationale being that it takes the same amount of time to work on any transaction regardless of its size. According to these bankers, the payout of working on smaller deals is not worth the time they put into them. Though there’s a funding gap for small and medium enterprises (SME) of approximately US$26 billion in the Gulf region. There is an underserved market here, but not much willingness from most bankers to work on the consolidation of these deals. In times of uncertainty, banker mandates should adapt to market requirements, but for some reason most bankers cannot see the value as their oversight seems to be due to their ambitious mandates.

Business in Ramadan is ongoing, quietly.

In the Reuters article the reporter used the word “lull” to describe the regional business environment and financial activity during the month of Ramadan –bad choice of words. This misrepresentation of the Ramadan business environment by the reporters is due to them not having skin-in-the-game and relying on feedback from bankers that focus on large market [and to a certain extent, middle market] deals. From my perspective, Ramadan activity is vibrant and much more focused, as deal-makers continue to work quietly, business is conducted at night time. Most of our senior executives, decision makers and key beneficial owners hold their meetings in the evenings after Isha prayer. Ramadan is a month of strategic preparation and deal-flow is always available. The unfortunate truth is that banker appetite and mandates are not in-line with the SME gap mentioned above.

In conclusion, we need to consolidate or gather the SME deal-flow available in the region under one universal platform to see the value of this market. A US$26 billion funding gap can be a turning point for the regional economy to flourish and strengthen job creation. This can all be fueled by private investors and regional banks if they loosen up their mandates and start seeing the potential in leveraged buyouts, acquisition financing, growth capital injection, capitalization events for regional SMEs are lacking. The growth of these companies can lead to a more diverse capital market as potential for public listing on regional stock exchanges is not being harnessed to its full potential.

I invite all Bankers that care about the livelihood of the regional markets and that wish to work on high growth SMEs, to join me in serving business owners in the region to consolidate and syndicate to secure and fill the funding gap in the region.

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