Middle Eastern bankers have spent all year bemoaning “aggressively” tight deals on their turf, such as loans for Abu Dhabi National Energy Company (Taqa), Saudi Aramco, Saudi Electricity and sovereign loans for Oman and Qatar.
“Generally, sovereign loans in the [Gulf Cooperation Council] do not make sense to us,” said one banker from a bank in the United Arab Emirates. Oman’s latest loan has a margin of 120bp and Qatar’s has a margin of 95bp. For most regional banks that’s too tightly priced.
But international lenders are filling in where regional banks are reluctant to lend. There is only one local lead bank in each of the loans for Oman and Qatar.
Bank of Tokyo-Mitsubishi UFJ, Barclays, Deutsche Bank, Mizuho, Qatar National Bank and Sumitomo Mitsui Banking Corporation are leading Qatar’s loan. Citi, Gulf International Bank and Natixis are leading Oman’s $1bn sovereign loan.
The absence of dealflow from Russia and the risk averse attitude to African loans makes the Middle East especially attractive for international banks.
The internationals are not deterred by concerns about low oil prices and they are interested in the ancillary business available from Gulf sovereigns. As long as the ancillary package is attractive enough, internationals will continue to lend.
With oil trading below $37 a barrel this week, the situation for GCC banks will only be exacerbated. Middle Eastern sovereigns will continue to withdraw bank deposits as they are hit by falling revenues from oil, and this will continue to drive up the cost of funding for regional banks.
Going into 2016, it will no longer be a case of regional banks complaining about tightly priced deals and reluctantly putting in their tickets, they will be forced to look further afield for profits.
African expansion
Middle Eastern lenders played a growing role in African loans this year. When the trickle of Nigerian loans finally came through for First City Monument Bank (FCMB), Stanbic IBTC and Ecobank, the deals were flush with new lenders from the Gulf.
The UAE’s Mashreqbank was lead for Nigeria Stanbic IBTC’s $103m deal. Commercial Bank of Qatar and ING were mandated lead arrangers and bookrunners. Al Ahli Bank of Kuwait, Al Khaliji France, Commerzbank, Doha Bank and SBM Bank were mandated lead arrangers.
In Ecobank’s deal, First Gulf Bank, Mashreqbank, British Arab Commercial Bank and Banque Libano-Française were lenders, among other banks.
Nigerian loans offered juicy spreads this year as political uncertainty and currency depreciation increased the cost of loans by around 1% from 2014 prices.
Ecobank paid 575bp for its $170m deal and FCMB (rated B/B) paid 425bp over Libor on its loan.
Middle Eastern lenders also jumped aboard the recent $250m three year deal for Egypt’s Banque Misr, which promised an attractive margin of 290bp over Libor. Bank ABC, Emirates NBD Capital, HSBC, Mashreqbank and Union National Bank were mandated lead arrangers and bookrunners. Bank ABC was also coordinator.
India and Pakistan are expected to provide opportunities for growth — an Indian corporate can offer a return of around 300bp on average, according to one banker.
Too far
One Gulf banker, whose bank has participated and arranged a number of African and Asian loans this year, said that not all Middle Eastern lenders would be capable of expanding into new territory.
“Credit risk premiums for African deals are very high and it’s difficult for someone who doesn’t have experience to work with that,” he said.
But certain, well-known issuers such as Standard Bank and FirstRand Bank will always garner attention from Middle East banks, according to the banker.
That banker’s firm is, however, also increasing its focus abroad in the quest for yield.
“We will increase our focus on those areas [Africa, India and Pakistan] because we need to pick up the shortfall expected in the Middle East,” he said.