Qatar’s Barzan gas project got more than a third of its $ 7.2bn financing last year from export credit agencies, which are backed by states and provide funding for equipment and materials purchased from their countries. Japan Bank for International Cooperation, the nation’s main overseas lender, expects its Middle East business to more than double this year.
“The European credit crunch means that some of the European banks are negative to put new loan assets in this region,” Hiroshi Kurihara, chief representative for Japan Bank, or JBIC, in the Middle East, said in a phone interview on last Thursday. “To make up for the lack of finance, the expectations of export credit agencies like JBIC are growing higher than ever as a stable source of funds for the projects.”
European banks, which are reining in lending amid the eurozone debt crisis, have accounted for only one of the top-five mandated arrangers for loans in the Middle East and North Africa so far in 2012, down from four in the five years through 2011, data compiled by Bloomberg show. Regional syndicated lending has dropped 28% in 2012 to $ 9.86bn, while in Asia it’s down 46%, according to the data. This makes it harder for businesses in the Gulf Co-operation Council to raise funds for infrastructure projects.
Companies in the six-nation GCC, which sits on one-fifth of the world’s proven oil reserves, have increased borrowings this year as the economies grow and yields on regional debt decline.
The average yield on GCC corporate bonds is down 54 basis points in 2012 to 4.68% on Monday, the HSBC/Nasdaq Dubai GCC Conventional Corporate US Dollar Bond Index shows. That outpaced a 25 basis-point drop to 5.83% on May 25 in the JPMorgan Emerging Markets Bond Index EMBI Global Blended Yields.
Japan Bank provided about $ 17bn of financing in 2011 for projects in the Middle East, Kurihara said, including $ 697mn for Marubeni Corp’s $ 1.6bn power-plant project in Oman and a $ 1.5bn power project in the UAE. The bank is in talks to finance some water and power projects in Kuwait and Oman this year, he said.
“In the 2012 fiscal year we expect to provide more than double the amount of financing we did in 2011 because we can already see there are a lot of projects that need to be financed,” said Kurihara. “There is a lot of demand for independent power projects and integrated independent water and power projects in this region where Japanese companies can play a big role.”
Saudi Arabia, the largest Arab economy, has announced plans valued at more than $ 500bn to build infrastructure, industry and create jobs.
Qatar, the world’s biggest exporter of liquefied natural gas, is set to invest about $ 100bn, according to International Monetary Fund estimates, to build stadiums, hotels, roads and other infrastructure for the 2022 soccer World Cup.
Of the $ 7.2bn in debt raised for Qatar’s Barzan natural-gas project in December, $ 2.55bn was provided by export credit agencies. Japan gave $ 1.2bn, Korea lent $ 1bn and Italy provided $ 355mn.
Oman Oil Refineries and Petroleum Industries Co is considering export-credit loans as part of financing to expand an existing plant, three people involved in the project said in April. Dubai Investments may secure an $ 180mn loan this week from Italian export credit agency SACE to fund a second glass production line, its chief executive officer said last week.
“The region is very infrastructure intensive at the moment and recently we’ve seen that some of the more traditional sources of financing for these kind of projects have been a little harder to raise,” Piers Constable, Deutsche Bank AG’s head of structured trade and export finance for the Middle East and Africa, said by phone on Sunday. “It’s only natural that borrowers are looking to diversify their sources of funding.”
Deutsche Bank has arranged more than $ 10bn of financing backed by export credit agencies for regional projects in past three years, he said.
Lower borrowing costs have raised the appeal of bonds and sukuk this year, with Middle East companies almost doubling sales in 2012 to $ 19.8bn, data compiled by Bloomberg show. Still, export credit loans enable government-related companies in Saudi Arabia and the UAE to diversify their funding, Constable said.
“For borrowers who are raising billions of dollars, they don’t want to put everything in one basket and just be reliant on the bond market,” he said. “For some corporates, export credit agency pricing and the tenors being offered are attractive.”
Gulf Arab banks tend to extend shorter-term loans with three-quarters of loans extended by Saudi banks maturing in less than three years, central bank data show. Emirates Aluminium Co, which is building the world’s biggest smelter in Abu Dhabi, has 15-year financing agreements with three export credit agencies for $ 737mn.
Companies may also turn to export-credit loans amid uncertainty about whether Greece may exit the euro area and after European leaders failed to come up with a plan at a summit last week to resolve their debt crisis. “Turbulence in the eurozone” and bank capital constraints “have hit bank lending and led to an increase in export credit agency activity in the Gulf region,” said Andrew Davison, senior vice president of the project and infrastructure finance group at Moody’s Investors Service Ltd.
“It’s almost certain that the amount and frequency of export credit agency-backed debt facilities will continue to increase,” he said by phone from London on May 24.
