ABSTRACT
Chapter 6 presents four case studies that offer detailed analyses of different aspects of the financial markets, all of which are specific to the region. The first case deals with the proposed privatization of Saudi Aramco, which stands to be the largest initial public offering in history. We offer a simple back-of-the-envelope valuation based on the basic premise that Saudi Aramco is managed more like an international oil company than a national oil company. The company is investing extensively downstream, in turn increasing its profit margins through advanced refining and chemicals production. The chapter also discusses in detail the motivations behind the privatization, its implications and challenges that may stand in its way.
The second case focuses on the trials and tribulations of The International Banking Cooperation (TIBC), a Bahrain offshore banking unit allegedly set up by one of the most respected trading families in Saudi Arabia, the Al Gosaibi family of Al Khobar. This case provides insight into how unscrupulous investors were able to take advantage of the differences in the regulatory processes between Bahrain and Saudi Arabia and how regulators, foreign banks and service companies failed to prevent the affair.
We then review how Dubai established itself as a major trading center in the region, capitalizing on the opportunities offered by instability on it periphery. The case offers a review of how gold trading with India in the 1970s became a financially lucrative opportunity for Dubai and then offers a theory on how Iranian leadership may have set up companies in Dubai to transfer money from Tehran to the emirate, which could indirectly benefit domestic banking liquidity in Dubai.
The final case study details how banks have had great success by working the very traditional banking instruments of documentary credits to facilitate the implementation of hundreds of billions worth of major infrastructure projects since the 1970s. Banks made out very well from these instruments, while bearing minimal risk. These documentary credits will remain very important for banks as more infrastructure is needed and planned.
