Jordan’s investment banking scene is changing, with lively action on the stage of initial public offerings, privatization and private equity deals, but also interesting goings-on offstage with some investment banking teams. In all that, Jordan is seeing an influx of Gulf capital into financial firms, which suggests that the country is migrating towards stronger involvement of regional investment banks but doing so as a secondary market for the Gulf, where the really big deals are going down.
Upfront, the financial and corporate investment market in Amman is lively, with IPOs for two recently established financial firms announced for early November, one for First Jordan Investment Company, a financial services and real estate investment firm with significant shareholding by Kuwaiti and Qatari players, and the other for Arab Future Investment Company, a startup investment company targeting small and medium enterprises.
Other new listings on the Amman Stock Exchange (ASE) since the middle of 2006 included Al Sanabel, an Islamic investment banking and brokerage firm that started trading in October, and July IPOs by brokerage Al Bilad Securities and by First Finance Company, a Sharia-compliant consumer finance provider. Each of the latter two startups entered the market under participation of Gulf shareholders and both firms were very successful in soliciting investor interest in their IPOs, reporting oversubscription rates of between four and five times apiece.
Another new brokerage company emerged in July through a merger of two existing Jordanian financial firms in conjunction with entry of a new regional partner, Al Mal Capital of the UAE. The new firm, Al Mal Securities Jordan, claims to be a regional leader in capitalization and plans to spread its brokerage wings to Lebanon, Syria, Iraq, and Palestine, according to Al Mal Capital. The company notabene also has near-term IPO intentions on the Amman Stock Exchange.
All in all, and despite a lackluster period for the ASE Index from February, Jordan has seen a rise in stock market flotations from seven in 2005 to 13 in the first half of 2006 alone. The majority of those were for companies in the real estate investment and financial services field, according to local investment guru Henry Azzam who multi-tasks as CEO of Amwal Invest—a 18-month-old Jordanian investment bank that went public in 2005—and chairman of the Dubai International Financial Exchange. By Azzam’s calculation, the combined paid-up capital of the first-half of 2006’s newly listed firms amounted to $463.32 million, a neat sixfold increase from the $77.15 million in total capital in the 2005 IPOs.
Market becoming too crowded?
While Jordan’s financial services sector has thus been expanding in operator depth and market presence, some industry insiders say that the market is getting too crowded with so many players. Omar Masri, founder and former head of investment bank Atlas Investment Group, said that the brokerage sector has filled to a point where some 50 companies are licensed to trade securities on the ASE, making this part of the financial industry “very fragmented.”
Zaid Nassif, vice president and head of corporate finance at Amwal Invest, said that investment banking in Jordan is progressing but at the same time competition between dedicated investment banks such as Amwal and Jordinvest and investment banking departments of commercial banks has increased greatly, leaving no room for new institutions the enter the sector.
According to Nassif, recent government regulations increased the market for investment banks by requiring IPO candidates to have qualified financial firms manage their offerings. Additionally, the growing count of listed companies would generate future demand for advisory and structuring of financial vehicles such as bond issues, rights issues, or eventual mergers and acquisitions.
Other experts pointed to Jordan’s active privatization program as a reliable source for investment banking needs, meshing with the local private sector demand and interest of Arab investors in the Hashemite kingdom to create a valid financial services sector.
While opening new opportunities, such market developments are also likely to test Jordan’s financial industry which is part of an overall national banking culture with relatively shallow roots in a country where commercial banking has bloomed later than in Lebanon and where still today one bank, Arab Bank, holds an overweight position in both market share and market capitalization.
Investment sector got its wind three years ago
The investment banking sector in Jordan—which saw initial formation of investment departments at commercial banks and some banks with investment angle starting in the late 1970s, and underwent another development push in the second half of the 1990s—really picked up around three years ago when trading activities on the ASE experienced a growth spurt, Masri said.
In his opinion, investment banking units of commercial banks in Jordan have “always remained a disappointment,” but at the same time the dedicated investment banks also “have not yet made a real impression in the local financial landscape.”
Masri described Jordan’s financial services environment as well-regulated, with a platform of recognition for investment banks and a vibrant bourse that is advanced in comparison to other Levant countries. But he said the greatest weakness in the sector was a severe lack of human capital.
Investment firms have large capital bases and well-known people at the top, “but they lack the workerbees,” he said. “Investment banking has growth with good potential in private equity. Advisory on privatization, private equity, fundraising services, and brokerage services, offer opportunities—but you need the right factory.”
While other investment bankers working in Jordan also see a need for further development of the regulatory side, they agree that the shortage of qualified investment professionals is the country’s main challenge in fostering sector growth.
This issue was illustrated earlier this year by a brain-drain at Atlas Investment Group, which saw several key employees depart the company to accept positions with investment firms in Saudi Arabia, Kuwait, Dubai and London.
In part, the rumblings inside Atlas were linked to the relationship between the investment bank and Arab Bank, which had acquired Atlas over two years ago. Industry observers said that recent moves by Arab Bank, such as excluding Atlas from advising on important acquisitions and the group’s capital increase, contributed to the disillusionment of senior employees.
In the words of Masri—who left Arab Bank and Atlas this spring to develop the investment activities of the Masri family-owned EDGO Group—the lack of alignment between the visions of Arab Bank and Atlas was one of the main problems.
According to the new top executive at Atlas, Arab Bank Head of Investment Banking Jawdat Halabi, the lure for professionals to move from Jordan to the better remunerated and more vibrant Gulf markets is strong, but the Jordanian market has recently grown more attractive. “The key issue is pay, and compensations in Jordan are moving much closer to the market trend,” said Halabi, who joined Arab Bank this year from the National Commercial Bank in Saudi Arabia.
Bullish on strategies for growth
Halabi confirmed that Arab Bank is bullish on Atlas and has a strategy by which the company will refocus its activities on asset management and brokerage services, positioning Jordan as one of several markets in the Levant and North Africa. At the same time, however, Arab Bank is developing a second investment arm in the Gulf region through AB Capital, a company registered at the DIFX. Arab Bank has no doubt this firm will take a larger role in investment banking than Atlas, because of the Gulf market’s superior size in comparison to Jordan and the Levant.
