IFLR 1000
The Guide to the World's Leading Financial Law Firms

All forms of banking in the Middle East have been tough in the past year. That was inevitable....

All forms of banking in the Middle East have been tough in the past year. That was inevitable. The opportunities that remain are largely based around the more stable project financings and the restructuring of existing loans. For the former, see the project finance section of this report, below; the latter included several novel transactions, including the first forward start facility in the region.

Under this structure, which only began to be used in Europe at the beginning of 2009, existing lenders to a company agree to refinance the loan in a separate arrangement with the borrower. Intransigent lenders are able to carry on with the existing terms of their loan, while the new lenders get rates that rise to the level of the new facility and the borrower gets surety of funding. It will be interesting to see if the structure is emulated by other borrowers in the region.

There had been hopes, as there were in Asia, that the Middle East would be isolated from the effects of the credit crunch on capital markets elsewhere. While the hopes were partly fulfilled in Asia, where regional exchanges bounced back faster than elsewhere in the world, the Middle East suffered heavily....

There had been hopes, as there were in Asia, that the Middle East would be isolated from the effects of the credit crunch on capital markets elsewhere. While the hopes were partly fulfilled in Asia, where regional exchanges bounced back faster than elsewhere in the world, the Middle East suffered heavily.

The second half of 2008 showed this effect fully - while there were sukuk in the second quarter for Dubai Water & Electricity Authority, Aldar Properties and the Government of Ras Al Khaimah, the last public regional debt capital markets issue of the year was in July (Tamweel's Dh1.1 billion ($299 million) sukuk). That deal also marked the end of speculation that the UAE government was going to de-peg the dirham from the US dollar. Many deals had been predicated on that and the inevitable upswing in the currency.

There were one or two deals announced at the beginning of 2008 - Emaar Properties' $4 billion in sukuk and Euro MTN programmes, for example - but the market was really kicked into gear by the issuance of $3 billion in two tranches of notes by Abu Dhabi. That was followed by a deal from the Qatari government and a few corporate issues by quasi-nationals in each country in the following months. The expectation for the rest of the year is for more conventional bonds from large corporates, and a couple of Islamic deals towards the end of 2009.

As in the UAE, so across most of the rest of the region, the exception being Saudi Arabia - which is always a market unto itself. There the public capital market suffered but benefited from its domestic focus and investor base. In line with this, private placements in the country continued and will continue to be strong.

Lehman Brothers had a fairly cataclysmic effect on M&A in the Middle East. Up until that point people thought the region was sheltered from turmoil elsewhere....

Lehman Brothers had a fairly cataclysmic effect on M&A in the Middle East. Up until that point people thought the region was sheltered from turmoil elsewhere. Lehman proved them wrong, the market took a tumble and Dubai came off worst - as the economy most driven by expectations. Private equity stopped, real estate almost stopped and financial services work limped on a little. The deals that were around were patchy, volatile and had long gestation periods.

For the law firms, as frustrating as the stop-start nature of the work was the huge pressure on fees, with firms in an evidently over-lawyered market becoming extremely competitive on price. Caps on law firm work, previously accepted only to consist of a few firms eager to get a toehold in the market, became the norm. Most accepted them as a necessary evil.

February/March 2009 brought a slight recovery. The shock had worn off and suddenly everyone was trying to work out what to do with (financially and emotionally) distressed corporates. Most of the work was debt-led on the finance and capital markets side, but corporate lawyers also found employment on workouts.

While the first half of 2009 has not seen as strong a recovery in M&A work as that in capita markets, lawyers and their clients are quietly hopeful for 2010. As one bank comments: "When all the big restructurings have washed through, in Dubai and elsewhere, then we'll have real transparency. Then the consolidation will start."

Project finance in the Middle East suffered both from the economic downturn in general (in particular, the seizing up of lending markets post-Lehman) and from the falling oil prices, which had reached a peak of $140 a barrel in 2008. Unsurprisingly many deals were put on hold and a few had to be renegotiated as lenders dropped out or simply ceased to be able to lend funds....

Project finance in the Middle East suffered both from the economic downturn in general (in particular, the seizing up of lending markets post-Lehman) and from the falling oil prices, which had reached a peak of $140 a barrel in 2008. Unsurprisingly many deals were put on hold and a few had to be renegotiated as lenders dropped out or simply ceased to be able to lend funds.

However, projects have always been a traditional strength of the region no matter what the economy, hence the inherent stability of Abu Dhabi, Saudi Arabia and to a lesser extent Qatar. And so deals have continued. Work has continued on the King Abdullah Economic City, the Jazan smelter and an olefins complex in Saudi Arabia.

And in Abu Dhabi the Paris-Sorbonne University closed at the end of the year, despite it not being linked to the traditional strengths (and more stable financing, at least internationally) of the petrochemical projects.