Citi is back in Saudi Arabia, determined to pick up where it left off

Updated 18 March 2018
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Citi is back in Saudi Arabia, determined to pick up where it left off

The year 1955 was a big one in the history of First National City Bank of New York.
Already a leading financial institution in the US, Europe and Japan, the bank went on an expansion spree in the Middle East, opening offices in Cairo and Beirut. In December, it started up in Jeddah, the first American bank in the Kingdom.
That office on the Red Sea coast was the beginning of a long and fruitful relationship between Saudi Arabia and what was later to become Citibank.
It was disrupted in 1980 when the Samba financial group was formed with majority Saudi ownership, and interrupted again by a strange 13-year hiatus from 2004 to 2017, but Jim Cowles, Citi’s chief executive for the Middle East business, is confident the bank has picked up where it left off.
“We’ve enjoyed a very productive relationship with the Kingdom of Saudi Arabia for many years. Among many transactions and services provided over the years, we were part of the sovereign syndicated loan in 2016, and of course the very successful inaugural sovereign bond issue and the sukuk offering in 2017,” said the 62-year-old Californian.
Those two transactions — which set new records in the global sovereign debt markets with a $10 billion syndicated loan two years ago and $21.5 billion (in conventional and sukuk bonds) in 2017 — were landmark events for the country’s financial system, helping to bridge the gap in the national exchequer left by the fall in oil prices.
They were also proof that Citi did not necessarily need a formal presence in the Kingdom to do business on behalf of Saudi Arabia. But Citi leadership decided that it was better to be all-in with the country’s banking authorities if it was to fully participate in the business opportunities presented by the Vision 2030 strategy to reduce oil dependency.
Last year, Citi won an investment banking license with the Capital Markets Authority, enabling it to take part in the full range of activities in mergers and acquisitions, initial public offerings, privatizations, and other capital markets business.
“So now we have the CMA license, and held our first board meeting in January. We’re very pleased to be back in the Kingdom with an on-the-ground presence,” Cowles said. He immediately began to put in place the executive team needed to run the revived Citi operation in the Kingdom.
“Getting the CMA license was a real highlight for us in 2017 and of course we hope it’s just the beginning. We’ve already started the hiring process on the ground and appointed two excellent local bankers to run banking and markets, as well as having tasked Carmen Haddad (a top Citi executive with extensive experience in the Middle East) with continuing to build our on-the-ground presence,” Cowles said.
Only one thing is needed to complete Citi’s return to the Saudi banking scene — a full license from the Saudi Arabian Monetary Authority — and that could come sooner rather than later. “In time I hope we look at a SAMA license which would allow us to expand into trade banking and treasury services, and also the cash management business,” he said.
A SAMA license would not be a foregone conclusion. It would, of course, need approval from the Saudi authorities, but also from the department of the US Treasury that oversees foreign involvement by American banks. The requirements for getting these approvals have been tightened up since the global financial crisis.
But Cowles is sure that a SAMA license would bring further business opportunities for Citi and for Saudi Arabia. “We would be able to add Saudi to our global banking network. It would be another significant opportunity to bring those services into the Kingdom,” he said.
Citi’s return to the Kingdom — expected to be marked by a formal ceremony in Riyadh next month — places it firmly in the top tier of international banks advising the Kingdom’s policymakers on the financial and economic aspects of the transformation underway there.
Recent reports suggested that Citi, Goldman Sachs, Morgan Stanley and HSBC had been appointed to arrange the best phase of its global borrowing program, involving the refinancing and extension of the $10 billion loan from two years ago, and a new bond which could rival the record-breaking $17.5 billion issue of 2017.
Cowles declined to comment on that possibility, though it is clear that such an involvement would be very much within the scope of its business capabilities.
“We’re market leaders across our institutional franchise. We are currently top of the league tables in equity capital markets, for example. Our global network is something that only Citi really can offer. We are on the ground in 100 countries around the world and there really isn’t anyone else who has this network. It’s a real advantage to be able to serve our clients’ needs with more products and more markets than anyone else as they grow and transact globally,” he said.
Such global firepower would be invaluable for the Kingdom if it decided to go ahead with the international element to the planned initial public offering (IPO) of Saudi Aramco, which is slated as the biggest IPO in history but about which recent doubts have arisen, at least with regard to the sale of shares on foreign markets, including Citi’s home city of New York.
Cowles, conscious of the delicate state of the Aramco situation ahead of the imminent royal visit to the US, declined to talk about Aramco. But Citi is believed to have been among a group of banks that made presentations to Aramco regarding the possible IPO earlier in the year. Whatever the outcome of the Aramco deliberations, Citi is keen to be involved in the rest of the Vision 2030 program, especially the big privatization program of other state-owned entities, which government officials have said could raise as much as $200 billion in a series of IPOs and trade sales.
Citi is relying on its track record of successful privatization in Pakistan and Greece as evidence of its capability in the potential Saudi sell-off, which would be among the biggest in history. The bank has already been involved in strategic advisory work with the National Center for Privatization, the government body charged with implementing the program.
“We continue to believe in and be supportive of Vision 2030. We think it’s a bold and appropriate plan. It will help to achieve the Saudi ambitions of attracting foreign direct investment, diversifying the economy, providing employment opportunities, especially for young people, and get more women into the workforce,” Cowles said.
One aspect of the Vision 2030 strategy is another sensitive issue for Citi. The anti-corruption drive launched last November included investigation of the affairs of Prince Alwaleed Bin Talal who, in addition to his Kingdom Holding business, is also an investor in many foreign companies including Citi.
His shareholding is believed to be less than 3 percent, but there has been no word yet from either the bank or Alwaleed himself whether it will remain at the current level.
Cowles declined to speak specifically about the shareholder, but gave some views on the wider anti-corruption drive. “What are the considerations foreign investors take into account when they make decisions? They look at the economic opportunities, the position of the country in the global marketplace, and they also take into consideration government policies that are robust in fighting corruption,” he said.
For an American doing business in Saudi Arabia, these are challenging times. Despite a generally benign global economic background, regional security issues are still at the forefront and the wider global picture has seen an increase in levels of political risk. Cowles is relying on Citi’s heritage and global network to see it through successfully.
“It’s a challenging time. The geopolitical situation is, of course, uncertain. But while these global issues are not things we can control, we are focused on taking our execution to the next level by building upon the work we’ve done over many years and continuing to put our clients first. “We’re a 205-year-old institution, and have a long history of serving our clients while managing our risk. We’re well equipped and experienced in adapting our risk profile as the environment changes and we will continue to do so,” he said. “There are also challenges in terms of globalization and equality. The world has to do a better job in terms of distributing the benefits of globalization. But overall we certainly believe globalization is a positive force.”
That cautious view on the geo-political issue is counterbalanced to some degree by the global economy. “When we look around the world from an economic point of view, the environment is very positive. There are very significant growth opportunities in developed markets and emerging markets. In the Middle East, you have to look country by country, but Citi has had record years in the MENA region in 2016 and 2017, and our presence in Saudi will add significantly to our growth prospects,” Cowles said.
Citi will play a role in the royal visit to the US over the folowing weeks, especially at the gathering of chief executive officers from the two countries in New York City planned toward the end of the trip.
“I’m sure it will be a very successful visit. Saudi Arabia is an extremely important strategic market for Citi and many other American multinational companies. I also believe it is important for Americans to learn more about Vision 2030 and understand how it
will transform the country,”
Cowles said.


Abu Dhabi ties help OMV pivot to Middle East

Updated 18 June 2019
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Abu Dhabi ties help OMV pivot to Middle East

  • OMV is shifting attention toward the Middle East as its chemist chief executive chases his vision of making the Austrian oil and gas group a major supplier of plastics
  • OMV boss Rainer Seele has spent more than €4 billion ($4.5 billion) — 40 percent of the group’s M&A budget until 2025 — for oil and gas concessions in the region

VIENNA: After years of largely banking on low-cost Russia for growth, OMV is shifting attention toward the Middle East as its chemist chief executive chases his vision of making the Austrian oil and gas group a major supplier of plastics.
OMV boss Rainer Seele has spent more than €4 billion ($4.5 billion) — 40 percent of the group’s M&A budget until 2025 — for oil and gas concessions in the region, a 15 percent stake in Abu Dhabi National Oil Co’s (ADNOC) refining business and a to-be-formed trading joint venture with ADNOC and Italy’s Eni.
“We want to have a fully integrated business model in Abu Dhabi — from the well via the refinery and the petrochemicals all the way to marketing and trade in international markets,” the chief of Austria’s second-largest listed company told shareholders last month.
OMV traditionally earns its money from producing, distributing and refining oil and gas in Europe. A focus on low-cost oil and gas fields in Russia — a source of investor concern due to US and EU sanctions — helped the group get back on its feet financially in recent years and become one of the best cash-flow generators in the sector.
After fixing a price this month for the purchase of Siberian gas assets from Gazprom, OMV has largely achieved its Russian expansion plans.
The Russia-led Nord Stream 2 gas pipeline, of which OMV is a financing partner, could face delays. However, OMV’s downside risks are limited to the €950 million it has committed, of which it has paid €644 million so far.
“This is already captured by its discounted valuation relative to its peers,” analysts at Berenberg said in a note.
Seele’s new, Middle East-focused strategy stems from a shift in the environment surrounding OMV’s business model, with challenges created by the politically promoted rise of renewable energy and increased use of electric vehicles.
Consultancy Wood Mackenzie forecasts that demand for oil in developed countries will revert to structural decline next year and drop by about 4 million barrels per day (bpd) by 2035. In contrast, it expects demand in developing economies, mainly in Asia, to increase by nearly 16 million bpd in the same period.
The rise in developing-country demand is seen largely driven by the petrochemicals industry, which uses oil to make the plastics needed for fertilizers, packaging, detergents and clothes, as well as for electric-car parts, solar panels and wind turbines.
This is where Seele gets excited. Refraining from expanding into renewables such as BP and Royal Dutch Shell, the CEO plans to monetise his oil with the expected surge in demand for plastics and also jet fuel, especially in China.
For Seele, the new focus is a journey back to his roots. The 58-year-old German holds a PhD in chemistry and started his career as a chemical research scientist.
He has chosen the United Arab Emirates as a base from which to secure a big piece of the Asian petchem pie, aiming to maximize profit via the entire value chain.
“What I am always preaching is, hey guys, try to think integrated,” he told Reuters when asked why he did not simply buy into China. “I cannot come up with an integrated business model in Asia if I buy into a petchem unit there. It would be an isolated investment.”
The UAE, a strategic investor in OMV since 1994, has aggressive energy ambitions for the coming decade. It is cooperating with international groups including Shell, Germany’s Wintershall DEA and US investment firms KKR and BlackRock to pioneer approaches and technologies.
Last year, the UAE launched a $132 billion capex program to become self-sufficient in gas by 2030 and establish itself as an exporter of petrochemical products. It plans to invest $45 billion alone into the Ruwais complex, which is located 240 km (150 miles) west of Abu Dhabi, to make it the largest integrated refinery/petrochemicals facility in the world.
ADNOC Refining plans to spend $1.9 billion annually, according to its five-year business plan. As OMV holds 15 percent, its share would be €285 million per year.
A cost optimization of Ruwais operations will be followed by investments to enable the use of different feedstocks and the processing of heavier, more sour crude at the site, Seele said in explaining the plans for ADNOC Refining. “We will create a Bordeaux,” said Seele, a connoisseur of red wine. “Right now we are only running with Cabernet Sauvignon in Abu Dhabi and we will add some Merlot.”
One challenge will be to export to Ruwais OMV’s European model of bundling refining and petrochemical production in integrated hubs. “We are transferring our European refineries now from predominantly fuel refineries to jet fuel and petchem units,” Seele said. “That’s the transformation we have in mind (for Ruwais as well).”
To deliver on its goal, OMV is working closely with its subsidiary Borealis, which partly runs the Ruwais refinery via its Borouge joint venture with ADNOC. Seele and Achim Stern, chief executive at Borealis, plan big.
Borouge hopes to give the final go-ahead for the construction of a fourth petrochemical complex at the site next year, Stern told Reuters. He did not disclose the cost of the new complex, but said it would be a “multibillion” decision.
OMV’s purchases of a 20 percent stake in Abu Dhabi’s SARB and Umm Lulu offshore oil concessions and a 5 percent stake in the Ghasha offshore gas and condensate fields from ADNOC were crucial for growth as they secure access to cheap feedstock, Seele said.
OMV also plans to recycle used plastic and convert it into synthetic crude oil at the Abu Dhabi complex. It is testing the patented, so-called ReOil technology at home.
“What we see in the market is a clear signal. If we don’t find a solution to recycle plastics, our polymer business will be negatively impacted,” the CEO said with a view to investors, who want the industry to work harder against climate change. “At the latest, in 2025 we would like to have a commercial plant.”
Analysts have praised OMV’s plans, saying major players in the oil and gas industry may envy the company for the deals with its financially strong shareholder ADNOC. However, risks remain: The emirate’s gas fields have proved challenging to monetise in the past due to high operating costs and artificially low local prices for the fuel.
“New technologies and development plans can improve this, but the fields still remain relatively difficult,” said Robin Mills, chief executive at energy consultancy Qamar Energy in Dubai.
Another challenge is inadequate infrastructure. The pipeline network needs to be extended, Seele says, at the same time indicating a solution is under way. “If you identify a problem, solve it.”