French merger creates synergy

14 December 2001

It was, as the saying goes, a marriage made in heaven. Although the regional strategies of Banque Nationale de Paris (BNP) and Banque Paribas were probably not at the top of the agenda when their merger was being considered in 1999, the regional union has borne - and continues to bear - fruit.

'There is no doubt that the merger created considerable synergies,' says Jean-Christophe Durrand, BNP Paribas' Bahrain-based regional director for the GCC. 'The operations of the two banks in the Gulf were highly complementary, and the more closely we looked at combining our operations, the more obvious the opportunities became.'

The legacy activities of both banks are clearly visible in the new BNP Paribas. Banque Paribas brought a GCC-focused retail and commercial banking operation, and a well-regarded and experienced project finance team. BNP had a strong offshore banking unit in Bahrain from which it offered market-oriented products. The result of the merger has been the formation of a full-service financial institution with a strong regional presence.

'There have been great natural synergies. The merger allowed us to offer a broader range of products to an increased number of clients. And we have been able to cement the two with better relationships,' says Durrand. 'Having a strong presence on the ground has allowed us to really develop these relationships.'

The geographical spread of BNP Paribas' influence throughout the region is extensive. GCC operations are managed from the bank's headquarters in Bahrain, and there are branches in Doha, Abu Dhabi and Dubai. The bank's GCC presence is boosted by a 20 per cent stake in Bank of Sharjah, which is supported by a management agreement, and an active representative office in Tehran.

Elsewhere in the Middle East the bank has a large footprint. In Egypt, it holds a strong majority position in BNP Paribas Cairo. Its subsidiary, Banque Nationale de Paris Internationale (BNPI) Lebanon, enjoys a broad retail franchise and a strong reputation supported by the bank's continual presence in the country during the civil war. In Tunisia, BNP Paribas has a 50 per cent stake in Union Bancaire pour le Commerce & l'Industrie.

BNP Paribas' presence in the Maghreb was reinforced in the summer with the acquisition of a 99.4 per cent stake in ABN AMRO Maroc by Banque Marocaine pour le Commerce & l'Industrie (BMCI), the French bank's local subsidiary. The acquisition added 20 offices based in 14 Moroccan cities, and 24,000 customers, to BMCI's operations, making it the third-largest financial institution in the country. There have also been recent moves into Algeria. In July, Banque d'Algerie (central bank) gave approval for the establishment of BNP Paribas El-Djazair, a wholly owned subsidiary of BNP Paribas, which will have capital of AD 500 million ($6.5 million). Operations are due to start at the beginning of next year.

The recent expansion of North African operations- which report directly to the bank's Paris headquarters - will not be matched in the Gulf. 'We have no immediate plans for further expansion,' says Durrand. 'We already have a strong presence, although we would be interested in Saudi Arabia and would look at any opportunities that arose there.'

For a number of the bank's clients and customers in the Gulf, there has been a clear feeling that BNP Paribas is more than the sum of its constituent parts. In no area has this been more evident than in the corporate and investment banking unit. Mandates have been won thick and fast over the past 18 months and BNP Paribas topped a recent MEED table as the most active international underwriter in the GCC in 2000.

Much of the success has been built on the strength of the old Banque Paribas brand in the region, and the strategic decision taken in Paris that the regional market was rich in opportunity. Part of the clearly discernable pattern over the past 18 months is that BNP Paribas has been willing to use its balance sheet consistently and aggressively at the same time as several of its international rivals have become more reticent. The deployment of powerful underwriting abilities was perhaps best seen with last year's lead arranging of Abu Dhabi's Taweelah A-1 independent water and power project (IWPP), in which BNP Paribas, alongside Citibank, underwrote the whole $1,100 million senior debt package. And it is noticeable that the French bank has played a prominent role in all but one of the IWPPs that have since been financed in the region.

'The ability to underwrite aggressively is partly the result of a new scale created by the merger,' says Durrand. 'It should not be seen as an attempt by us to buy our way into the market, but is part of the way in which regional relationships are formed between banks and governments and corporates. We have a strong presence in the region and this is appreciated.'

BNP Paribas has not only been an enthusiastic lender. It has also demonstrated commitment when times have been hard. The debt financing for Oman's Salalah independent power project (IPP) - for which the bank has acted as financial adviser and joint lead arranger - was on the brink of being launched to the syndications market on 11 September. Yet, despite a sharp falling-off of international interest in the transaction, BNP Paribas has stuck with the deal, successfully sold it down to Omani banks, and is preparing to take it back to the international market.

The bank's raised project and structured finance profile in the region has seen it picking some significant advisory mandates, the cream of investment-banking opportunities. In addition to its sophisticated work on the Salalah scheme, BNP Paribas is the only international bank in the team appointed to prepare Saudi Arabian Airlines, the huge flag carrier, for privatisation.

Equally significant is the financial advisory mandate, won in August, for the fourth liquefied natural gas (LNG) train of Ras Laffan Liquefied Natural Gas Company (RasGas). The value of the mandate, and its importance, could be dramatically increased if the financing of the fourth train is rolled in with the third. If this happens, and BNP Paribas gets hold of the overarching advisory mandate, it will add another impressive line to its regional curriculum vitae. Already on the list would be the advisory mandate for Algeria's first GSM licence, another for the restructuring and privatisation of Electricite du Liban and a third for the sale of Orascom Telecom's sub-Saharan subsidiary, Telecel.

What credibility this lengthening list will have on the bank's future success remains to be seen. But BNP Paribas has clearly pushed its way into the first division, and its appetite for advisory work remains strong. It is the frontrunner for the financial advisory position on the proposed refinancing of a $300 million debt package for Qatar Fuel Additives Company (Qafac) and it is on the shortlist for the advisory post on what will almost certainly be the first IWPP in Saudi Arabia, the power and water component of the third core venture of the gas initiative.

'The Middle East has become one of the most important global project finance markets,' says Durrand. 'The focus used to be on Asia, but conscious decisions have been taken in the region to move forward with huge infrastructure projects and to use private sector finance. There is excellent potential here.'

But for all the headlines grabbed, there is more to the bank's corporate and investment-banking activities than structured finance and advisory work. A memorandum of understanding was signed in May with Kuwait Finance House (KFH) for the establishment of a $2,000 million, Islamically-structured money market instrument. The plan is to set up a fund of existing BNP Paribas leasing assets, have them screened by KFH, put them into a special purpose vehicle (SPV) and sell participating certificates in the fund. The final stage of sorting out fiscal and legal issues has been entered and the fund is expected to be launched next year.

The lead taken in the attempt to develop an Islamic interbank market reflects the bank's strong treasury position in the region. 'Looking forward, our two main aims are to maintain our leadership in market making for Arab currencies,' says Durrand. 'And to further boost the sale of treasury and foreign exchange products to corporates.'

The strength of some of the bank's relationships, and the occasional advantage of being French, is highlighted by BNP Paribas' continuing role in Iraq's oil-for-food programme. Until recently, all the revenues from the sale of about 2.5 million barrels a day of oil have been placed in a UN escrow account held at the New York branch of BNP Paribas. With the account regularly holding more than $10,000 million, or the equivalent in euros after Saddam Hussein chose to switch Iraq's oil-trading currency, the decision was taken to involve more than one bank, and BNP Paribas is no longer the only recipient of Iraqi oil revenues. 'We had a sole mandate for some time, but now the cake is shared,' says Durrand. 'For Iraq it was politically acceptable and desirable not to have a US or British bank and we have a strong trade finance background in Iraq.'

But the importance of local presence and long relationships is best seen in the development of private and retail banking operations. 'The recent establishment of a full international retail banking presence in Bahrain was the missing piece of the puzzle,' says Durrand. 'We now have fully co-ordinated activities in the Gulf with products developed here and marketed throughout our regional operations, such as our new Sherpa fund [a capital-guaranteed, five-year fund]. In the retail market we are targeting the top end of the market. We also have a Bahrain-based private banking team and an asset management operation. Bahrain is one of the few global sites based on the cohabitation of all lines of business.'

The hope is that the full integration of disparate activities will allow the French bank to find more synergies and create more value.

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