Investment Outlook 2017: Deal trends in the GCC

When oil prices dropped two years ago, it took a while for the severity and durability of the new oil-price environment to sink in. The response came in 2016: governments focused on cutting expenditure, sending a cascade of caution through the entire economy. The impact on deal flow was huge and mostly negative. The upside of an unprecedented boost in sovereign borrowing, as Saudi Arabia and others moved urgently to secure external financing, was compensated by a steep drop in most other areas of activity, with particularly weak years for IPOs and M&A activity.

That cautious approach was cemented by political shocks in two of the GCC’s most important partners – first in the UK in June 2016, with its vote to leave the EU; then in the US, with the election of Donald Trump in November threatening to turn the dynamics of economic and geopolitical relations with Gulf allies upside down. Behind all this action, the GCC also enjoyed a far quieter – but perhaps more significant – growth in investment flows from Asian markets, especially China.

As we move into 2017, these trends will continue to encourage caution. Strong growth and confidence is unlikely to return until the oil price stabilises above $60/barrel and nobody expects that to happen soon, even if OPEC sticks with its agreed production cuts. Instead, governments are taking a more serious and long-term approach to fiscal adjustment and structural reform, creating new pockets of opportunity and shifting the potential for deal flow in the future.

The main areas for potential growth that we expect to see in 2017 are:

  • Debt capital markets will remain busy, given continued fiscal deficits and demands for corporate refinancing, despite rising borrowing costs 
  • Private equity in the GCC will pick up as early stage venture-capital style deals with technology start-ups attract international as well as strong local interest, helping to increase M&A activity 
  • Banks and corporates will look to consolidate and restructure 
  • A new flow of partial privatisation sales will start to rekindle equity capital markets, especially in Saudi Arabia and Oman 
  • The PPP project pipeline will expand into education, healthcare and transport infrastructure, as new laws come into force and projects get underway

This report explores the market dynamics that will shape the outlook for GCC transactions in 2017 and provides new insights into the longer term shifts emerging as the world changes.

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