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26 February 2024

Record loan volume for Middle East

By Agencies

Syndicated lending in the Middle East rose 65 per cent in 2007 to a new record of $151 billion (Dh554bn) as regional borrowing defied the credit crunch, according to Reuters Loan Pricing Corporation.

Borrowing in the region stayed on track in the second half of the year, while the effects of the subprime crisis started to curb syndicated lending in Western Europe and the United States.

Middle East loans have traditionally been generated by financial institutions and project financing, but 2007 saw an increase in corporate borrowing and acquisition finance.

Corporate borrowing of $67 billion (Dh246bn) accounted for 44 per cent of regional volume as companies secured bigger loans than ever before, pushing average deal size over $1 billion (Dh3.67bn) in 2007 compared with $496 million (Dh1.82bn) in 2004.

The majority of corporate borrowing backed M&A activity as Gulf state-owned companies embarked on an international debt-financed acquisition spree in 2007.

SABIC bought General Electric's plastics business for $11.6 billion (Dh42.6bn) backed by an $8 billion (Dh29.4bn) leveraged loan in the largest foreign acquisition by a Gulf investor.

Borse Dubai made a $4.9 billion (Dh18bn) joint offer with Nasdaq for Nordic exchange OMX backed by a $5.8 billion (Dh21.3bn) loan and Dubai World borrowed $5 billion (Dh18.4bn) to invest in Las Vegas.

Bankers expect even larger M&A financings to emerge from the region in 2008, which could produce record loans.

"It wouldn't surprise me to see a government fund get involved with a sizeable deal the size of Porsche [Dh189bn] or Enel [Dh124bn] in 2008," a banker said.

Telecoms was the most active sector in Middle Eastern borrowing in 2007. Telecom companies took $32 billion (Dh117bn) of loans to pay for licences or back consolidation and accounted for 21 per cent of all regional borrowing.

Saudi Arabian telecom Mobily agreed to the largest ever Islamic loan in June of $2.88 billion (Dh10.6bn) to back expansion plans, while Qatar Telecom's (Q-Tel) $3 billion (Dh11bn) deal backed its 51 per cent stake in Kuwait's Wataniya.

The Egyptian unit of UAE's Etisalat agreed an $850 million (Dh3.1bn) loan in December after winning Egypt's third mobile licence in 2006, while Kuwait's Zain won its bid for Saudi Arabia's third mobile licence with a $6.1 billion (Dh2.4bn) bid funded by loans.

The telecom sector is expected to remain active in 2008, along with utilities and commodity resource companies, banking sources said.

"Expect one of the Gulf telecoms to buy into Europe in 2008," a banker said. "I wouldn't be surprised to see a $20 billion-plus [Dh73bn-plus] telecom acquisition."

Gulf region not entirely immune

The Middle East was not immune to the effects of the credit crunch. In November, Qatari fund Delta Two dropped plans for a  

£10.6 billion (Dh77.2bn) bid for Britain's Sainsbury and a 6 billion pounds leveraged loan was cancelled.

Lending to the Middle East continued in the second half of 2007, but borrowers had to pay higher margins towards the end of the year as the credit crisis pushed banks' funding costs higher and lenders demanded more return on increasingly scarce capital.

The financings for Dubai World and Dubai Ports were arranged after the crunch. Both companies paid a premium to ensure successful syndication and were able to increase their loans. Dubai World upped its loan to $5 billion (Dh18.4bn) from $2.7 billion (Dh10bn), while DP World raised its $3 billion (Dh11bn) loan from $2.5 billion (Dh9.5bn).

"DP World was priced at a premium, set at 45 basis points [bps] for an A+ rating," a banker said. "That's double what you'd get in Europe for the same rating."

Q-Tel paid a 65 bps margin on its $3 billion (Dh11bn), five-year loan in November, compared with the 22.5 bps it paid in April for a $2 billion (Dh7.3bn), three-year revolving credit. (Reuters)