Qatar: Banks raise capital for expansion
The Middle East | 13 Dec 2012
Local banks are turning to the capital markets to finance expansion as they set their sights on growth both in the domestic market and overseas.
On November 9, Qatar National Bank (QNB), the country’s largest bank by assets, announced that it had successfully completed a $1bn bond issue on the international markets, through its Euro Medium Term Note (EMTN) programme. The tranche, launched on November 7, matures in February 2018 and carries a coupon of 2.125%. Coupons are regular payments made to bond holders, and this is the lowest rate ever for a bond issue by a financial institution in the region.
The low coupon reflects the perceived security of the QNB’s issue, an important vote of confidence in the bank at a time when some institutions and countries are spending increasing amounts to service their debt. The issue was several times oversubscribed, and QNB’s strong domestic position (with a 45% market share) and profitability will have contributed to the enthusiastic international interest in the bonds.
The bank has raised nearly $4bn this year through the most recent issue, plus a $1bn bond launch in February and a $1.8bn syndicated loan in August. Local media has said QNB is planning to use the extra capital both to expand lending on the fast-growing domestic market — which has seen loan growth reach 32% in the year to August, supported by major public projects — and to build up its presence overseas.
QNB is expected to be lining up a bid for French bank Société Générale’s 77.2% stake in its Egyptian subsidiary, NSGB. QNB Group already operates in 24 countries worldwide through its own network, subsidiaries and associate companies, and benefits from the strong backing of the Qatar Investment Authority (QIA), the country’s sovereign wealth fund, which owns a 50% stake in the bank, the other 50% being held by the private sector.
The bank itself has said that the capital-raising programme is intended to “widen its investor base; reduce the mismatch in assets and liabilities; and to fund growth opportunities”.
While QNB has turned to conventional debt markets to bolster its capital, counterparts have turned to the sharia-compliant (Islamic) instruments – particularly, of course, Islamic institutions.
In October, Qatar Islamic Bank (QIB), the country’s largest sharia-compliant bank, issued a $750m five-year sukuk (Islamic bond) aiming to leverage high levels of liquidity and demand for issues in the region. Ahead of the deal, order books exceeded $6bn, and the issue launched at 175 basis points (bps) over midswaps (the benchmark rate for a variable-rate bond), reflecting the sukuk’s popularity. The sukuk was the first launched by QIB, in which the QIA has a 10% stake, for two years and represents half of a planned $1.5bn in sukuk issues.
Later in October, Qatar International Islamic Bank (QIIB) successfully priced a $700m five-year sukuk, its first international capital market bond launch. The issue reportedly attracted an order book of $2.7bn, and was launched at a spread of 190 bps over midswaps, Reuters reported. QIIB officials said that the capital would help the bank participate in major projects in Qatar, particularly in infrastructure development.
Qatar is rolling out a substantial programme of infrastructure construction, some of it linked to its successful 2022 FIFA World Cup bid. The run-up to the football tournament has helped galvanise the construction of other long-term infrastructure, including a metro and rail system, improved roads and new hotels.
REED Global, a UK-based employment agency, said on November 20 that it expected banks to embark on a major recruitment drive as they prepared to expand in tandem with Qatar’s growing stature as an economy of global importance.
The company itself has recently strengthened its finance division in Doha to meet the “sharp increase” in demand for international hiring in the banking and financial services industry. “We have noticed a significant increase in the appetite among the big local banks especially to bring experienced banking and finance professionals from overseas over the last six months,” Lawler said.
REED’s findings follow other reports suggesting that the Qatari banking sector is poised for a period of growth and modernisation. In an interview with the local press in early November, Omar Mahmood, a financial services partner at accountancy firm KPMG in Qatar, said he expected to see banks capitalise on an improving investment environment and a number of large-scale infrastructure projects in 2013.
The expected investment surge over the coming years should also provide opportunities for foreign lenders, given that not all Qatari banks have the capacity to take on costly projects alone and are limited in experience to leveraging a relatively small domestic market.
Mahmood said that greater international syndication, the offering of loans in partnership with other institutions, would support growth and allow Qatari banks to take on greater numbers of big-ticket project finance deals.