DUBAI: JPMorgan Chase & Co. is gaining ground in the debt markets of Gulf Cooperation Council states after the biggest U.S. bank helped manage this month’s Islamic bond sale by Saudi Arabia’s utility.
JPMorgan is the biggest bond underwriter after HSBC Holdings Plc in the six-nation GCC in 2014, its best start to a year since 2007, according to data compiled by Bloomberg. The New York-based lender advised on six deals, including Saudi Electricity Co.’s $2.5 billion sukuk sale on April 1.
Its jump from sixth place in the rankings at the end of 2013 partly reflects the rise of Islamic finance, which will become a $2.7 trillion market by 2017, according to PricewaterhouseCoopers. Sukuk made up more than 70 percent of total bond issuance this year in the GCC, which supplies one-fifth of world oil, data compiled by Bloomberg show.
“Islamic finance now has the biggest slice of the bond market,” Samer Mardini, a vice president of fixed income at SJS Markets Ltd. in Dubai, said. “Issuers are more comfortable with big names like JPMorgan. They can act as market-makers and book runners to ensure a successful issuance.”
JPMorgan hired former UBS AG banker Hussein Hasan last year to head global Shariah-compliant financing. It has also “intensified its focus on corporate clients’ needs in the Gulf region over the past few years,” said Hani Deaibes, head of Middle East and North Africa debt capital markets at the bank.
“This effort, combined with more market certainty, has better positioned us to assist them in raising funding across the international and domestic markets.”
International bond-market conditions have become “conducive” since the start of the year as the U.S. Federal Reserve provided more clarity on interest rates, encouraging companies to raise long-term funding, he said.
Saudi Electricity raised $1 billion in 30-year sukuk and $1.5 billion in 10-year securities. HSBC and Deutsche Bank AG also worked on the transaction. Deutsche Bank is the region’s third-biggest underwriter this year, data compiled by Bloomberg show.
The GCC has become a battleground for international banks as other parts of the Middle East and North Africa struggle to recover from political turmoil following a series of popular uprisings that first erupted in 2011.
Economic growth in the oil-rich Gulf region is set to accelerate to 4.4 percent this year, compared with 2.8 percent for non-oil producers, according to HSBC forecasts released in January.
JPMorgan’s performance has come even as bond sales dropped almost 50 percent this year to $8 billion as some regular issuers, such as cash-flushed banks, refrain from tapping the market and offer cheaper loans to companies, data compiled by Bloomberg show.
New York-based JPMorgan said Hassan, previously global head of Islamic structuring for UBS, is focusing on clients in countries including Saudi Arabia and Malaysia, according to an emailed statement at the time of his appointment in January 2013.
Malaysia hosts the world’s biggest market for Islamic bonds, while Saudi Arabia boasts the world’s biggest share of Shariah-compliant assets.
More Saudi borrowers may still issue debt after Fitch Ratings upgraded the kingdom one level in March to AA, the third-highest investment grade, according to John Sfakianakis, chief investment strategist at MASIC in Riyadh.
“The recent sovereign upgrade should also help issuers who are looking for more competitive pricing,” he said.
Economic growth in Saudi Arabia may accelerate to 4.2 percent in 2014, from 3.8 percent a year earlier, according to economists’ estimates provided to Bloomberg.
JPMorgan has helped arrange bond sales for Saudi Arabia’s National Commercial Bank, Abu Dhabi Commercial Bank PJSC, Qatar National Bank QD, as well as Kuwait Projects Co., data compiled by Bloomberg show.
“At the end of the day, it’s all about being competitive in pricing against the rest,” Sfakianakis said. “That’s the only way it can be done in a market that is price sensitive.”