First mover Macquarie Capital is at one with Abu Dhabi’s financial strategy
There was never any doubt in Wissam Moukahal’s mind that Macquarie Capital would be among the first group of banks to join the Abu Dhabi Global Market, the capital’s new financial free zone.
“Every bank says they’re committed to the region, but we’re really committed to Abu Dhabi,” says Mr Moukahal, the executive chairman of the Middle East arm of Australia-based Macquarie.
So, after ADGM declared itself open for business last year, he set about completing the formalities to become a registered financial entity on the market, and last month Macquarie was named as one of a trio of financial institutions to call ADGM their home.
The commitment to the capital goes back some way. Macquarie chose Abu Dhabi when it set up in the region in 2005 and later became one of the first tenants of what was then Sowwah Square (now ADGM Square) on Al Maryah Island, the new free zone’s location.
Lebanese-born Mr Moukahal’s personal ties to Abu Dhabi go back further, he having first lived and worked in the capital with previous employers 16 years ago, before taking the top regional job for Macquarie in 2014. “Maybe you could say I’m biased, but we’ve got 20 people here already and can always ask for global operational support from the Macquarie network. There is no ‘suitcase banking’ culture here,” he says.
There was also a persuasive business logic for Macquarie to chose ADGM ahead of rival financial centres in the Arabian Gulf countries. The bank has had a traditional strength in infrastructure finance, and it was Abu Dhabi’s strategy for infrastructure development that clinched it for Mr Moukahal.
“It comes down to this: do you believe the AD story or not? We do. We’re convinced the wealth and financial strength of Abu Dhabi can make the global market work. Financial services are an essential part of it, providing the finances to support real estate, infrastructure and the other essential parts of the strategy. I’m optimistic the ADGM structure will create space for us to come up with the specialist instruments we need to service clients,” he says.
The bank has a proven track record in this kind of work in Abu Dhabi, having partnered with local banks and authorities on the Industrial City developments in the capital, as well as on other government-sponsored projects. Precisely because of the importance of those government partners, Macquarie will retain its “onshore” banking licence alongside the ADGM registration.
“We’ll get involved in all the traditional areas of infrastructure, like roads, bridges and transport, but also social infrastructure, like health, education and water treatment plants. We regard national housing, too, as part of the infrastructure,” Mr Moukahal says.
In financial terms, those sectors are at the sharp end of policymakers’ thinking at the moment. The fall in the price of crude oil on world markets has put pressure on government budgets and on their ability to meet the commitments of Abu Dhabi’s development plan, as laid out in the Economic Vision 2030 strategy paper.
Mr Moukahal sees this as a perfect opportunity for Macquarie.
“A lot of governments are seeking alternative procurement and financing models for infrastructure. They are less willing to take on all the aspects of infrastructure finance themselves, and that is where the public-private partnership model (PPP) comes in. The private sector is more efficient at delivering on time and on budget.
“The region has seen PPPs before, in the electricity, water, oil and gas sectors. Now we’re extending that same model to different sectors,” he says.
That does not imply that the current economic model is flawed, or that the strategy will be tipped off track by the fall in energy revenue.
“I’ve always thought geopolitical factors are more important than oil in determining economic and market sentiment. But I still believe that GCC economies are under-leveraged. There are still big reserves in Saudi, Qatar and the UAE. The oil companies and the sovereign wealth funds have huge reserves. They are very resilient economies.
To some degree, what slowdown there has been is by the design of governments. They could fund the budget deficit to ensure growth continues at past rates, or be more cautious, and they’ve chosen the latter. That’s good policymaking,” he says.
“The diversification strategy will continue, I’m certain of that. The pace might slow down or be scaled back, but that is very different from being cancelled or fundamentally changing the strategy.
“The figure that really matters for AD and the UAE is the percentage of the economy that comes from non-oil by 2030. The plan aims at reducing the proportion from oil to 36 per cent by then and financial services can make a big contribution to achieving that,” he says.
Macquarie offers the full range of investment banking services and was involved in some work on possible stock market flotations before market sentiment towards initial public offerings changed with the oil price. Mr Moukahal says there may be some sign in recovery in the IPO market towards the end of this year.
In corporate advisory work, Mr Moukahal says his executives have a different approach to many banks. “Our investment bankers typically have the mindset of old-fashioned merchant bankers. That is, we believe in investing our own money alongside clients in the region. That helps give us access to a different segment in the market – the family and private offices of big local organisations.”
But the focus will continue to be infrastructure finance as part of the principal investments business. “Our policy in principle investments is to seek situations where there is less of a direct government role but still plenty of supervision and control by the authorities. Usually, all the finance is raised by the private sector via both equity and debt.”
Macquarie, with US$375 billion of assets under management globally, can afford to commit its own capital to these projects.
It also offers specialist industrial expertise via its projects services unit, where experts in areas such as engineering or surveying advise the client on the technical and commercial aspects of an infrastructure project to ensure it comes in on time and on budget.
As one of the “first movers” into ADGM, Macquarie is hoping to capitalise on the capital’s new ambition to be a global financial hub, using it as a launch pad for business especially in Saudi Arabia, where Mr Moukahal sees big opportunities.
“I’m confident the ADGM structure has created the space for us to come up with the specialist instruments we need to service clients all round the region,” he says.