LONDON: Syndicated lending to companies and projects in the Middle East dropped to a five-year low of $26 billion for the first nine months of 2009, according to Thomson Reuters LPC.
The data shows a 73 percent fall compared with $94.5 billion of loans completed in the first nine months of 2008.
Project financing made up 31 percent, or $8 billion, of this total as banks have been willing to lend schemes backed by strong sponsors and well structured deals.
At $18 billion, Middle Eastern firms have not taken out so few corporate loans since 2004.
The loan market has been hit by the debt restructurings of privately owned Saudi groups Saad and Algosaibi and fears over Dubai’s tricky refinancing program.
Nearly half of all the region’s borrowing in the year to date — $12 billion — is new money, although this figure is skewed by nearly $6 billion of loans agreed to for Abu Dhabi’s IPIC in July.
Dubai’s ability to refinance its debt is still giving banks cause for concern.
Dubai World is restructuring $12 billion of syndicated and bilateral loans, banking sources said. That includes loans for Istithmar, the investment arm of the Dubai government, as well as Nakheel, developer of Dubai’s landmark artificial palm-shaped islands, which also has a $3.5-billion Islamic bond maturing in December.
The region’s loan market will struggle to move forward until government support and the borrowers’ plans become clearer, bankers said.
“The government’s funding repayment and refinancing plan to support that overall package is still not really well known,” a senior banker said. “The market will move when it knows.”
Meanwhile attempts by Saad and Algosaibi to restructure their debt continues to cause headaches for Gulf specialists. Several international banks are embroiled in a legal battle over the fallout of the debt restructuring, with some putting the total debt involved at $22 billion. More uncertainty hit the Gulf in September when Bahrain-based Gulf Finance House shelved plans to refinance a $300 million Murabaha deal after mandating Deutsche Bank to lead the deal in July.
International lenders faced another setback in September when Qatar’s Diar Real Investment appointed Qatar Islamic Bank to arrange a 3.5 billion riyal Islamic ($933.3 million) loan. This snubbed three international banks that were close to the arranging mandate for the refinancing and scuppered chances of an increasingly rare Gulf syndicated loan.
“Failed situations in Saudi, Kuwait and Bahrain have not helped and continued uncertainty at Dubai World is a cause for some concern for some banks,” the senior banker said.
There have been some successes. Telecoms companies Qatar Telecom (Qtel) and Zain Saudi Arabia signed a $2 billion forward start loan and a $2.5 billion Islamic loan, respectively.
But the major success stories were reserved for project finance deals, with the conclusion of deals for UAE’s Dolphin Energy and Shuweihat 2 power generation and water desalination project in Abu Dhabi, which have received strong support from banks as well structured deals sponsored by large multi-national and state-owned companies.
“There has been an orderly progression of (project) deals this year,” one project financier said.
French oil company Total was one of the sponsors of Dolphin Energy’s $4.1 billion refinancing and is also involved in the $12.8 billion Jubail refinery in Saudi Arabia, alongside state-owned Saudi Aramco.
Banks have been pitching terms to the financing, which will be the Gulf’s biggest this year at around $8 billion. “Lots of banks will make their budgets this year,” the project financier said. “There has been a good selection of larger deals well enough structured so that banks could get approval.”