In recent years, the Gulf’s loan market has exhibited an extraordinary capacity to maintain stability in the face of geopolitical and economic crises.
While the slump in commodity prices in late 2014 had domestic ramifications throughout the Gulf, exacerbated by the rentier-heavy nature of regional governments, Gulf sovereigns and corporates have since managed to stabilise their financing.
The loan market has more than weathered the GCC’s recent storms, illustrated by a flurry of billion dollar deals in the past year alone — most notably Saudi Arabia’s Public Investment Fund signing a record $11bn loan from a consortium of international lenders. More than $37bn worth of loans has been raised in Saudi Arabia since 2018, followed closely by more than $25bn worth of transactions in the UAE.
Recent regional spats and geopolitical crises — the two most recent being the Saudi-led GCC blockade of Qatar, and the Saudi-Khashoggi affair — marked potential ruin for international lending interest in the region. But, the much-discussed durability and resilience of the loan market lived up to expectations during both calamities, with bankers shrugging off notions that such events could permanently damage lending capacities.
Banks cautious of the political volatility of the region need only look at the success of Qatari FIs, including the Commercial Bank of Qatar and Qatar National Bank, coming to the market earlier throughout the year.
But more than that, the region has significant financing needs, with governments across the region — from Saudi Arabia to Qatar to Oman — looking for ways to diversify and modernise their economies.
While it comes as no surprise that most top-tier banks have already built well-established presences in the region by taking large tickets on recent loans, including the likes of Citi, JP Morgan, and BNP Paribas, there is still an abundance of space for less familiar lenders to enter the scene.
But, the importance of relationship banks in the region must not be underestimated, making it all the more pertinent for lenders with potential interest in the region to step up.
As Gulf countries move away from local borrowing, international banks are presented with a prime opportunity to lend with the added comfort that participating in a syndicate provides, while simultaneously growing relationships with one the most resource-rich regions in the world. Although the major APAC banks, including Mizuho, ICBC, and Sumitomo, have presences in the loan market — most clearly in Saudi Arabia — with large corporate deals in the pipeline, such as Saudi Aramco’s expected acquisition of SABIC, there are prime opportunities for Chinese banks to further expand into the Gulf and consolidate relationships with typical borrowers in the region, as many are doing in Africa. And it’s not just lending — there’s enough ancillary business, too.
According to a report by PWC’s Strategy&, for example, Saudi Arabia is expected to spend $1.1tr on infrastructure projects between 2019 and 2038, in line with its Vision 2030 goals.
“Saudi Arabia’s MoF and PIF deals earlier this year were dirt cheap. But banks became involved in order to gain access to future ancillary business with the kingdom,” said a senior loans official at one of Saudi’s relationship banks.
And beyond Saudi are several further prospects: with smaller economies such as Kuwait implementing infrastructure development initiatives set to span the next decade, the expansion of dual conventional and Sharia-compliant transactions, and renewable energy projects, creating plenty of room for loan banks to develop their standing in the Gulf.
Simultaneously, GCC sovereigns’ financing needs are expected to be in the range of $300bn between now and 2021 according to a report from S&P, presenting a golden opportunity for banks without existing relationships with Gulf countries to consolidate their presence.
Although pricing across the region has become noticeably tighter in recent years, some are assessing the cost-benefit analysis of such transactions with a longer-term perspective, and are thus willing to bite the bullet.