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Middle East firms sign $6.6b of loans in Q1

Speculation over Dubai World’s $26 billion debt restructuring cast a shadow over the Middle East loan market in the first quarter, but that began to lift with the emergence of several deals that showed lender appetite for strong, government-backed credits and well-structured deals.

Abu Dhabi state-owned IPIC’s $3.6 billion, three-year loan was the first UAE loan to be launched after Dubai World’s standstill request in November and the biggest corporate Gulf loan since its $5 billion loan of 2009.

The deal proved extremely popular and marked the reopening of the Gulf loan market, raising nearly $5 billion and increased from $2.5 billion as 
a result.

The loan market also benefitted from fears of bond market contagion from Dubai World. Both IPIC and Emirates Aluminium originally planned to raise funds in the bond market but abandoned their plans in favour of loans in the first quarter.

Fierce competition among banks for relatively scarce mandates helped to drive down pricing in the Gulf.

Falling pricing for loans in Europe have put pressure on Middle Eastern margins to drop, although Gulf-based companies continue to pay a premium over their Western counterparts.

IPIC was able to slash its cost of borrowing to 150 basis points (bps) over LIBOR, compared with 250-400 bps on a one-year tranche from 2009 it refinanced.

Abu Dhabi’s government investment body Mubadala is close to agreeing a 75 bps margin having called on its relationship banks for a $2.5 billion, three-year club loan, bankers said.

The revolving credit includes usage fees that will boost pricing by 20 bps if more than 33.3 per cent of the loan is drawn and 40 bps for more than 66.6 per cent — but the deal is priced closer to European loans than any recent Gulf deals. Mudabala’s pricing matched the 75 bps margin agreed on Q1 deals for A- rated European corporate borrowers such Austrian OMV, German Henkel and Dutch Philips, but as a AA higher-rated company Mubadala continues to pay a slight premium.

Qatar Telecom is looking to capitalise on market conditions and downward pressure on pricing to reduce its borrowing costs and has approached banks to refinance a $2 billion forward start loan that signed last year.

State-owned Qatar Aviation Leasing’s $650 million loan proved immensely popular, raising $2 billion in the market. The three-year revolver paid a generous 250 bps over LIBOR, and its appeal was further boosted by the fact the loan was fully underwritten, pre-funded and included a sovereign guarantee.

Abu Dhabi’s state-owned Emirates Steel is refinancing a $1.5 billion loan, while Emirates’ Aluminium is also in talks for a $700 million export credit covered loan for its smelter.

Saudi Arabia dominates project financing in the Gulf, but international banks are still reluctant to lend to Saudi companies after Saad and Algosaibi defaulted on $22 billion of debt last year.

Financings backing the Jubail 2 refinery — led by state-owned Aramco and French oil major Total — Aramco’s Yanbu refinery and the Riyad PP11 power plant have proved popular, but Saudi firms wanting corporate loans have little option but to tap local banks for funds.

“There are too many risk factors that if you are not already ‘local’, you would not expect to see international banks be willing to take on new or additional risk,” a senior banker said. “Beyond risk associated with project or structured deals linked to SABIC or Aramco for example, I am not so sure there is sufficient appetite to go beyond these names.”