Rothschild move confirms the new allure of Riyadh

KAFD

In the past, delegates gathering at the Capital Markets Forum in Riyadh would have disembarked from the early morning flight from Dubai bleary-eyed ahead of the two-day financial extravaganza.

Today they are just as likely to have made the short car-ride from their apartment or villa in the Saudi capital, and could even fit in a trip to their Riyadh office as the Forum winds up for the day.

Investment bankers, mergers and acquisitions experts and corporate restructurers have been choosing in increasing numbers to make Riyadh a permanent base, rather than commuting from the UAE and elsewhere to do business in the kingdom.

Last weekend, Rothschild, perhaps the most illustrious of the European merchant banking dynasties, announced that it was to set up in Riyadh, after many years of doing long-distance business there from its base in the Dubai International Financial Centre.

Rothschild, under its Saudi managing director Nasser Alissa, will run a seven-person team of financiers from new offices in the King Abdullah Financial District (KAFD), the $10 billion complex the government of the kingdom has long planned as its financial hub, and a rival attraction to the delights of Dubai in the Middle East banking scene.

That is a smart move by Rothschild, which will be one of the few foreign banks to set up so far in KAFD.

It will join local heavyweights of the booming Saudi financial scene such as the $700 billion Public Investment Fund and Saudi National Bank, as well as a stack of prominent names from the Saudi corporate sector.

Rubbing shoulders with such Saudi financial leaders in the growing financial power nexus of KAFD under chief executive Gautam Sashittal will do Rothschild no harm at all as it seeks to win a bigger slice of the lucrative financial sector in Saudi Arabia.

The influx of bankers to Riyadh probably owes something to the ‘stick and carrot’ approach Saudi policymakers have adopted

The KAFD is also the venue for the Capital Markets Forum, which brings together some of the biggest players in financial and economic policymaking, as well as the kingdom’s stock exchange and capital markets leaders.

Rothschild and others in the increasingly competitive Saudi banking scene are all seeking to win business in the burgeoning financial sector in the Middle East.

With the rest of the world witnessing a slowdown in capital markets activity as a result of higher interest rates, inflation fears and worries about tipping into recession, the Arabian Gulf is an oasis of activity.

Initial public offerings, virtually unknown in Western markets for some time, are forecast to continue growing in the Middle East this year as governments continue the diversification strategy away from oil dependence and direct state control of the economy, and as family businesses and private companies seek capital from public markets.

Carmen Haddad, vice chair of Middle East wealth and banking for Citigroup, said last year that Saudi Arabia “is like China of two decades ago,” as bankers chase deals.

Citi’s return to Saudi Arabia – it closed down much of its operation there in the early 2000s – is another example of the lure of the Riyadh markets. 

Citi is expected to be among a group of Western advisers jockeying for position in what many financial professionals regard as “the big one” of 2024 – the long-mooted sale of a further chunk of shares in Saudi Aramco, perhaps as early as the spring.

Almost certain to be involved in the Aramco sale, when and if it proceeds, is Moelis & Co.

Its founder Ken Moelis – wryly dubbed “Ken of Arabia” by jealous rivals – has pursued a long-term strategy of engagement with Gulf policymakers through thick and thin, and has reaped the rewards in the form of lucrative transactional returns from the region out of proportion to its size relative to the Wall Street giants.

The influx of bankers to Riyadh probably owes something to the “stick and carrot” approach Saudi policymakers have adopted in a bid to win more regional financial business.

Since the start of this year, international organisations have had to have a regional headquarters in the capital or lose out on lucrative government business.

One fly in the ointment could be the hearings under way in Washington in which US lawmakers probe strategic consulting firms about their work for the Saudi government. But so far no top-notch banks have been called before the senators. Insiders dismiss the probes as political noise in a presidential campaign year.

It looks like the bankers will be beating a path to Riyadh for some time to come.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE