The finance finder

After 30 years in the Middle East, Barclays bank and it’s more modern investment arm, Barclays Capital, has experienced huge growth levels by raising money on behalf of landmark regional deals. Nicholas Hegarty, managing director of MENA investment banking at ‘Barcap’ tells James Bennett how the milestone US $3.5 billion Dubai Ports World sukuk deal to takeover P&O was a team effort and not an individual achievement

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By  James Bennett Published  June 6, 2006

|~||~||~|My father says my hobby is my work. If I have a fault it’s that.” Nicholas Hegarty doesn’t like talking about himself much, which for a profile interview isn’t nice to hear, but in his case it’s forgivable – he puts something else way above personal gain – the success of the institution. “You’ll have to ask the others in the office if I’ve established myself as an individual. I haven’t developed new skills, I already had the skillset coming down here in terms of being in banking for a number of years,” says Hegarty confidently, swiftly switching from the singular to the plural. “The approach we take is that if we are offering a deal, we believe in it. It’s not that we look for a potential guarantee of support from the government behind it. We look at the merit of the deal on a standalone basis and that differentiates us from others. We look to be proactive and instead of waiting for the opportunity we go and identify it.” The ‘institution comes first’ mantra has seen Barclays Capital, or ‘Barcap’ as it is known in the banking fraternity, become one of the leading investment institutions, not just in the Middle East, but also across the globe. Ever since Barclays investment banking controversially ditched the large majority of its business units due to minimal margins in 1997, including its mergers and acquisitions (M&A) division, and decided to concentrate on bonds, the debt market and risk management, it has rapidly become dominant in new ways of raising finance for large, aspirational companies. And with the backing of its AA-rated big brother that has a gigantic balance sheet of over £924 billion (AED6.4 trillion) and 9000 staff worldwide, it can easily play ball with the big boys. Hegarty has worked in large banks across the globe his entire career and has been with Barcap for almost two and a half years, joining from ABN Amro in March 2004. Since that time the business has experienced incredible market advances seeing 20% year-on-year growth, becoming the largest debt player in Europe and the third largest globally. Pre-tax profits at the bank were up 25% to US $2.2 billion with revenue exceeding around US $7 billion in 2005 while profits are expected to rise to US $2.4 billion later this year. On a regional level Barcap has stood ahead of the field on many occasions and won and delivered several landmark deals during the Irishman’s time – deals that have pushed the institution into the big league in the Middle East, he says. The first, and according to Hegarty, the most crucial in attracting a rapid flow of business, was its US $750 million debut issue for Emirates Bank in 2005. “The deal broke the glass ceiling of US $500 million. More importantly, we increased the distribution and the spectrum of our investor base. Typically the predominant investor base was the GCC, but we brought that issue and subsequent issues to the European and Asian markets. It opened a new, wider pool of investors, and has seen a larger number and a larger size of issuants.” This was swiftly followed by a close but complex collaboration with the National Bank of Abu Dhabi, setting a new “pricing paradigm” and raising an issue worth US $850 million, the largest issue of its kind at the time. The biggest milestone, however came in the form of the world’s largest US $3.5 billion Islamic bond, or ‘sukuk’, on behalf of Ports & Customs and Free Zones Corporation (PCFC), the holding company for Dubai Ports World (DPW) that was locked in a takeover war for UK business P&O. Hegarty again dismisses his personal involvement in favour of the banks’ but says it was a transaction that proved Barcap’s product diversity and determination to grab the big deals. “I didn’t play any personal role, it’s an institutional transaction. Our role was originating the transaction and identifying the opportunity. Given the dynamics of that deal we were probably more actively involved on the ground because it was more tailor-made to the current dynamics of the market which was highly liquid, very much IPO-focused, with a yield return and this product fitted that dynamic perfectly.” Listed on the Dubai International Financial Exchange and oversubscribed by between 50 and 75%, the sukuk was initially set at US $2.8 billion, however it eventually raised 25% more than expected, offering holders 30% of shares of government-owned PCFC’s companies if (as it plans in 18 months) it becomes publicly listed in the next three years. Islamic bonds comply with Sharia law, which forbids borrowing or lending on interest. Instead, investors receive regular payments based on profits from approved investments. DPW’s eventual takeover of P&O and some of its US ports remains a thorny issue with the shipping giant in the process of having to forcibly sell on six American locations due to incessant political pressure. Although from Hegarty’s point of view, the deal was far from contentious. “In the context of its size and the sector it was a landmark deal. For us it was significant because it was the largest sukuk, it was a pre-IPO, it was innovative and many people have now claimed intellectual capital to that deal which is amusing but a fact of life. “But for us it was also a first and a fantastic working relationship with Dubai Islamic Bank (DIB) that was a joint lead arranger. It was a dual effort in terms of the execution and delivery with DIB.” Despite not being an Islamic institution, Hegarty explains proudly that Barcap’s PCFC deal showed it could successfully originate and deliver large deals for regional companies under Islamic banking laws in no time at all. “That is the way we operate and the model we’ve pursued. We don’t profess to be an Islamic house and we’ve taken a deliberate strategy not to set up an Islamic body,” he says. “The logic there is that because we’re not a competitor we can work compatibly with a true Islamic house and use their Islamic expertise with our structuring and distribution expertise. It’s then that you can derive a different product of this nature to the market. “Many people in the market at the time were sceptical that this wouldn’t happen. One of the banks that was with us in this deal couldn’t get there and they didn’t see the product developing and being accepted in the market. I’d prefer not to mention them but it wouldn’t be difficult to guess.” Guessing who its rivals are in a fiercely competitive sector aside, working closely with existing clients and on new projects, ensuring that Barcap doesn’t miss out on any of the transaction action and adding a little extra to each deal is close to Hegarty’s heart. “We try and add value, we don’t look just for the cut and paste transaction, and that’s what we continue to look for – the next product in which we can do that.” This wasn’t always the case for Barcap’s Middle Eastern arm. Pre-2004, Barcap was a project finance and funds-to-funds house. Today, it has one of the widest ranges of product offerings from any Barcap office including convertibles, property finance, structured property finance on a development basis, aircraft finance, securitisations, syndicated loans, acquisition finance and risk management. The list goes on. “We’re active in so many areas now, and in a broader scope than ever before. We’ve seen a dramatic change in the market in terms of the number of active players. We’ve looked to be more proactive and add-value rather than offer a generic product,” he says. “In 2002, 2003 and 2004 we were nowhere in the market. We then came here and used the strength of Barclays to do so many more things,” he adds. Times have changed for banks in the region and Hegarty is among the new breed looking to adapt to whatever prospect comes around the corner. The days of “suitcase bankers”, as he says, are long gone. “You have to be located here to do the business. You have to establish yourself, both as an institution and as an individual and you have to, above all, position yourself as someone who can deliver, who understands the products, who can offer them effectively and ensure their execution throughout the whole process,” he says determinedly. “You have to be consistent in your approach and maintain a high-level of integrity and, as a result, trust in the relationship from the client. That’s where we’ve gone with our policy of being focused with the clients we work with. Where we went wrong in the past was that we tried to be all things to all people,” he adds. Hegarty, however isn’t always so institution focused and says joining the bank and coming to the region has been a “pleasure and a breath of fresh air” for himself and his family. “Living here is not necessarily a dream come true but it’s more like living in a dream. If there’s one major concern it is how long will this all last? “I don’t think it’s a factor of the economy of the UAE or the region. The oil price is there to give that sustainability. The biggest concern is more geopolitical such as the US-Iran relations and that’s something out of our control.” This could certainly disrupt the rapid flow of capital throughout the region, but is out of his hands. Something that is in Hegarty’s control is the future of Barcap. And that will almost certainly grow to new highs in a very short space of time.||**||

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