Iran conflict risks hurting financial firms' Middle Eastern activities

Impact of the Iran Conflict on Banking and Financial Operations

HONG KONG/TOKYO, March 2 (Reuters) - The U.S.-Israeli military assault on Iran has cast doubt on capital market activity in the region as the conflict freezes the travel of bankers and dealmakers over concerns of security risks and business disruptions.

Bankers and investors warned that the conflict could disrupt planned capital market fundraisings and cross-border mergers and acquisitions with travel halted and discussions suspended.

Short-Term Disruptions to Capital Flows and Investment Talks

Fred Hu, chairman of China's Primavera Capital Group, said the Iran war could disrupt two-way capital flows and investment talks between the Middle East and China in the short term.

Chinese Investors Put Deals on Hold

A few Chinese investors have decided to put on hold talks to buy infrastructure- and energy-related assets in the Middle East, a Hong Kong-based investment banker said.

Security Assessments and Delays in Business Visits

Banks will need to conduct security assessments before sending employees back to the Middle East, leading to a "meaningful delay" in visits between Middle Eastern investors and Chinese corporations seeking investments, according to a business development executive at a state-owned Chinese bank.

Over the past two years, the executive said, Middle Eastern interest in attracting Chinese investment has grown, as Middle Eastern investors have also expanded their ownership of Chinese firms.

Geopolitical Uncertainty Complicates Dealmaking

However, an uncertain geopolitical outlook now complicates banks' efforts to pitch overseas expansion opportunities through dealmaking, he said.

The disruptions, however, seem "unlikely to sever, much less reverse" the expanding investment ties between China and the Gulf region over a longer term, Primavera's Hu added.

Travel Restrictions and Operational Challenges

Bank Staff Travel Suspended

TRAVEL RESTRICTIONS

Meanwhile, a number of large banks have ordered staffers to halt trips to the Middle East.

Standard Chartered, Japan's Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group have asked employees to postpone travel to the Middle East, the lenders said on Monday.

Japanese lender Mizuho, which has offices in Dubai and Riyadh, told Reuters a voluntary evacuation for its employees was possible.

Cancelled Business Meetings and Regional Instability

A Hong Kong-based banker who heads equity capital markets at an Asia-based firm said he cancelled a planned late-March trip to the Middle East for client meetings due to the escalating military attacks and the potential for a prolonged conflict in the region.

The U.S.-Israel strikes killed Iranian Supreme Leader Ayatollah Ali Khamenei on Saturday, which caused Iran to strike back at cities in the Gulf. Airlines halted flights and tankers carrying oil and other products suspended transit through the key Strait of Hormuz.

Reporting and Editorial Credits

(Reporting by Selena Li, Kane Wu and Jayshree P Upadhyay in Hong Kong, Miho Uranaka in Tokyo and Rae Wee in Singapore; Editing by Jacqueline Wong and Thomas Derpinghaus)