Wall Street bigwigs and top corporate chieftains are scurrying to the Mideast petro states to curry favor and pitch megadeals
When Morgan Stanley (MS) Chief Executive John J. Mack took his board of directors to Dubai last March, an unusual visitor stopped in to pay his respects: Sheik Mohammed bin Rashid Al Maktoum, Dubai's ruler. Mack had planned to visit the emir in his palace, but the ruler informed bank officials that he preferred to meet at Morgan's Dubai offices, just a short walk from his own office. Within 20 minutes, a conference room was cleared and the furniture moved into a semicircle, the time-honored arrangement for a majlis, or royal council. The sheik, clad in a traditional white robe, was accompanied by a retinue that included three of his sons. While one man wafted incense, the sheik entertained questions and held forth in English for more than an hour about his vision for Dubai.
It was just another moment in the great Mideast money dance. The region, after all, is swimming in trillions of petrodollars, which are now funding a slew of megadeals. In November, for instance, the state-owned Abu Dhabi Investment Authority bought a $7.5 billion stake in ailing Citigroup (C), and in September, Abu Dhabi investment fund Mubadala Development paid $1.35 billion for 7.5% of private equity heavyweight The Carlyle Group. "You're starting to see as many power brokers here as you see in financial hubs like London or New York," says Nabil Lahham, a top Dubai-based investment banker for Lehman Brothers (LEH). They're sounding out moneymen on everything from taking minority stakes in their companies to co-investing in distressed mortgage assets. "You will see many familiar faces in the halls here," says Farouk A. Bastaki, an executive at the Kuwait Investment Authority, which manages an estimated $250 billion of the emirate's wealth.
Sheik Mo, as expats like to call the fit, 58-year-old ruler of Dubai, keeps a gallery of those faces on his Web site for all to see (and while you're there, check out his love poetry). There's a snap of the sheik with Mack, two with Lloyd Blankfein of Goldman Sachs (GS) (who visited in February and June), another of General Electric (GE) CEO Jeffrey Immelt, and a video of his chat with Stephen Green of HSBC (HSBC). The sheik has been known to squire chief executives around town; he once got behind the wheel of a white BMW stretch limo to show Viacom (VIA) boss Sumner Redstone one of Dubai's sprawling construction sites. He likes to pick up intelligence on the global economy from his visitors as they seek his blessing on initiatives in the region—though he doesn't cut many deals himself, preferring instead to steer foreigners to the right locals.
CONFABS AND CAMEL RIDES
Just about all the big names are trying to leave their footprints in the sand. Three months after Morgan's board had its Dubai meeting, Goldman did the same. And on Dec. 10, Carlyle co-founder David Rubenstein, Texas Pacific Group founder David Bonderman, Ripplewood Holdings CEO Tim Collins, and other private equity grandees will attend a conference called SuperReturn in Dubai. As part of the confab, they'll retire to the Bab Al Shams resort in the desert for camel rides on the red sand dunes, mezzes such as tabouleh and babaghanoush, and a performance by a Lebanese belly dancer.
While it helps to be a corporate titan, there are other ways to get in the door. Bankers earn points by going to black-tie shindigs thrown by Omar bin Sulaiman, who oversees Dubai's new 110-acre financial district. Members of the royal family also host majlises at their homes, for both locals and foreigners, where the head of the household sits in a large room lined with cushions, offering dates, coffee, and tea and listening to visitors' concerns.
All the traffic in and out of Dubai, Abu Dhabi, Kuwait, and Doha has spawned a cottage industry of door openers. Former Texas Senator Phil Gramm, now a rainmaker for UBS (UBS), has made calls on Arab financiers such as Dubai International Capital Chairman Sameer Al Ansari. Britain's former ambassador to the United Arab Emirates, Anthony Harris, who has lived in the Gulf for 42 years and speaks Arabic, assists roughly a dozen companies (including The McGraw-Hill Companies (MHP), which owns BusinessWeek) in reaching the right people. Former Defense Secretary William Cohen, now CEO of consultancy The Cohen Group, trumpets his expertise in the region on his Web site and has been to Dubai twice this year. "Certainly one of the growth trends in the region is in middlemen," says Richard Klein, a former State Dept. official and now head of Middle East business at Kissinger McLarty Associates, a consultancy headed by Nixon-era Secretary of State Henry Kissinger. Klein makes perhaps a dozen trips to the Gulf each year for clients such as Universal Studios, up from three or four just a few years ago.
To see this parade in its full splendor, plop down in one of the plush black armchairs in the lobby of the Emirates Towers. The 51-story hotel and office complex is owned by Sheik Mo, who keeps an office there. It stands across the street from the granite and marble Dubai International Financial Center and has become a sort of combined bedroom, boardroom, and barroom for visiting bigwigs. In the soaring atrium, waitresses pour coffee for a crowd ranging from Arab businessmen in white robes and checkered kaffiyehs to Western businesswomen in short skirts. On the top floor, the Vu bar offers nightcaps and sweeping vistas of the pulsing city, clouded only by thick smoke from Cuban cigars.
Those smokefests have resulted in a pile of deals. Mergers and acquisitions in the region have soared from $2.7 billion in 2004 to nearly $100 billion this year, HSBC reports, and with the economic trouble in the U.S., Middle Easterners smell a great chance to buy U.S. assets cheap. The current subprime crisis "is creating an opportunity to pick up a stake in a wounded eagle," says Mohamed Metwally, managing director for investment banking at HSBC in Dubai.
The constant stream of visitors has made many locals more choosy about the meetings they take. One Gulf financier told his secretary he was inclined not to meet former Defense Secretary Cohen because he wanted rising political stars, not faded ones. Cohen declined to comment for this article. And a Western banker in the Gulf says that the region's big sovereign wealth funds aren't interested in $100 million deals. "For several hundred million and up you have a chance," he says.
Decision-makers in the Gulf are also a lot more savvy than in the past. During the 1970s oil boom, the Gulf states and Saudi Arabia spent tens of billions of dollars on arms purchases that did little to benefit their people, and some $5 billion in Kuwaiti state funds went missing in Spain in the early 1990s. These days, projects aren't likely to get far unless they offer the prospect of local job creation and knowledge transfer, says Klein of the Kissinger Group. "Four or five years ago you could walk into Dubai with a four-page business plan and walk out with $400 million," he says. "Those days are over."
It's not just about finance. Drive from Dubai to Abu Dhabi along the Sheik Zayed Road, a six-lane highway that winds 80 miles along the coastline and through the barren desert, and you'll see the logos of all kinds of American companies: Chrysler, GE, Hewlett-Packard (HPQ), and more. They're all in the region looking to sell their wares, not to pick up financing for deals. Microsoft (MSFT) co-founder Bill Gates met with Saudi King Abdullah a year ago, and the company's international chief, Jean-Philippe Courtois, just returned from a three-day, three-city tour of Saudi Arabia on the corporate jet. Cisco Systems' (CSCO) sales in the region have nearly doubled annually since 2005, and CEO John Chambers visits about four times a year. After Russia, India, and China, says Mark De Simone, vice-president for the region at Cisco, "the Middle East is the next big wave."