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Barclays’s Azar Sees Middle East M&A Driven by Sovereigns

Middle East mergers and acquisitions, at a six-year high, will be driven by sovereign wealth funds and regional transactions amid an economic recovery in the Persian Gulf, according to a Barclays Plc (BARC) executive.

“M&A is back. Money is cheap and companies are feeling better about growth through acquisitions,” Makram Azar, vice chairman of investment banking, said in an interview yesterday. “There are two types of M&A happening in this region - sovereigns looking at acquisitions abroad to diversify and regional consolidation.”

Deals valued at $39.1 billion have been announced in the Middle East and Africa this year, the highest since the same period in 2007 and a 15 percent increase from a year earlier, according to data compiled by Bloomberg. Some of the biggest transactions involve companies in the United Arab Emirates consolidating as they seek to benefit from a revival in property prices, tourism and retail.

Abu Dhabi sovereign fund Mubadala Development Co. said in June it will buy a stake in state-owned Dubai Aluminium Co. in a $15 billion joint venture. Aldar Properties PJSC (ALDAR), Abu Dhabi’s biggest developer, in the same month completed the acquisition of Sorouh Real Estate Co., creating a developer with $13 billion in assets.

Ooredoo QSC, the company formerly known as Qatar Telecom QSC, bought about 200 million shares in Kuwait’s National Mobile Telecommunications Co., known as Wataniya, in October for 519 million dinars ($1.8 billion), raising its stake to 92 percent from 53 percent.

U.A.E. Deals

“There are also a lot of companies in the Gulf that operate in the same industry who are realizing that integration would provide them with the scale and competitive advantage to reach the next level,” Azar said. “We’ve already seen examples of such transactions with QTel/Wataniya, Dubal/Emal and Aldar/Sorouh, and we expect to see more of these intra-regional transactions.”

Dubai and state-linked companies are preparing to repay about $20 billion in debt in 2014 in what Moody’s Investors Service has called a “pivotal year” for the emirate. A property crash spurred by the 2008 global credit crisis drove Dubai to the brink of default almost four years ago, before it was rescued with a $20 billion bailout from Abu Dhabi and the U.A.E. central bank.

Dubai Confidence

Confidence in Dubai, home to the world’s tallest tower, has improved since state-linked companies refinanced or paid $3.75 billion of debt last year.

An upturn in domestic real estate sales has coincided with a recovery in the economy, which expanded 4.4 percent last year, the most since 2007 as tourism and retail figures improved, according to government data.

Barclays, the third-largest arranger of M&A deals in the region, was an international adviser on a plan by Egyptian construction and fertilizer company Orascom Construction Industries to transfer shares from Cairo and London to Amsterdam in a deal valued at about $10.5 billion, according to data compiled by Bloomberg. It also advised Bahrain’s Investcorp Bank BSC when it sold its majority stake in British online payment company Skrill Group this month to CVC Capital Partners Ltd. in a 600 million-euro ($802 million) transaction.

Barclays rose 1.3 percent to 284.3 pence in London as of 2:17 p.m. local time and has gained about 8 percent this year.

The bank plans further expansion in the Middle East on rising demand for wealth management and investment banking services, John Vitalo, the bank’s chief executive officer for Middle East and North Africa, said in March. The bank, which employees about 1,000 people in the region, expects to hire about 100 more this year and has a “healthy pipeline” of debt capital market and M&A deal mandates, he said at the time.

To contact the reporter on this story: Stefania Bianchi in Dubai at sbianchi10@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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