Headquartered on the eight floor of a non-descript office building on Karachi’s II Chundrigar Road, United Bank Ltd’s investment banking division is probably one of the most important players in Pakistan’s capital markets and yet it rarely, if ever makes the headlines.
Of the roughly Rs200 billion worth of private sector investment banking transactions in Pakistan last year, UBL was involved in about three-quarters of them. How did this team of 19 people come to be the largest investment bank in Pakistan?
While it certainly helps to be housed inside the fourth largest bank in the country by assets, UBL’s team appears to have benefited from having been designed from its very inception as an independent investment banking division, separate from the corporate banking team.
“We were the first specialised investment banking division amongst the Big Five banks, back in 1999 when Zubair Soomro was still running things,” said Saeed Iqbal, the erudite head of UBL’s team.
In 2003, the team was organised into three separate groups, allowing further specialisation of the bankers and helping the bank offer highly customised services. The debt capital markets and syndication team – which brings in about three-quarters of the investment bank’s revenues – deals largely with high volume, low margin transactions. The bank then has another team that deals with structured and project finance and a third that offers advisory services, equity market transactions and private equity placements.
This structure has since been replicated by many other investment banking teams in other banks in the country. UBL’s head start, however, appears to have helped them generate more business than nearly all of their competitors.
Having said that, Iqbal does not deny that having UBL’s backing has been a primary reason for the bank’s success in securing and originating deals.
“There is very little about corporate Pakistan that the big banks do not know about,” said Iqbal. “If there is somebody we do not lend to, there will definitely be a reason why.”
According to Iqbal, the group conducts between 20 and 25 transactions every year, ranging usually between Rs4 billion and Rs6 billion, though sizes can vary widely. The team typically does one large initial public offering every year. In 2011, that offering was Engro Foods’ IPO, which raised about Rs1.8 billion for one of the largest food companies in the country.
Despite the financial crisis that hit Pakistan and the rest of the world in 2008, UBL’s investment bank was able to retain its size and continue to grow its revenues. The secret to their success, says Iqbal, has been geographic diversification. About 25% of the group’s revenues come from abroad, from transactions conducted leveraging UBL’s network in the Middle East. Of the 19 people in the team, two work in Dubai full-time to manage the bank’s relationships with its investment banking clients.
The Middle East team was able to conduct the first ever syndicated financing in Yemen, when it raised funds for a 100 megawatt independent power project in that country.
As a result of their regional presence, UBL has been able to secure mandates from Pakistani companies looking to raise capital abroad. For instance, in December, they helped the state-owned Pakistan International Airlines raise $110 million in a three-year debt financing deal.
The equity business for UBL is relatively small. In 2005, the bank began a private equity business, initially focusing on proprietary investments – where it invested its own capital into companies. Owing to regulatory changes, however, the private equity business is now focused primarily on placements of private equity amongst institutional and high net-worth individuals. The team advised Lotte – the South Korean conglomerate – on its buyout of Kolson, the struggling cereal and pasta manufacturer.
Yet despite leading the most successful investment bank in the country, Iqbal did not appear optimistic about the rise of investment banking in Pakistan, and suggested that both regulators and market participants were to blame.
“On the equity side, we have punters, not institutional investors,” he said. “In terms of lending, the State Bank of Pakistan has said to us all ‘thou shalt lend to bricks and mortar,’” referring to banking regulations that make it all but impossible to raise large amounts of capital on a cash-flow basis, and instead require borrowers to pledge collateral.
Published in The Express Tribune, February 7th, 2012.