Gulf-based banks have battled increased funding costs for most of the year and have relied heavily on European and Asian banks to buy loans for regional borrowers. But bank funding costs have spiralled after Lehman’s collapse and liquidity is reatreating back to domestic markets and is being further eroded by enforced bank consolidation.
“There is no money in the Middle East loan market — there is no liquidity,” a loan syndicator in the Gulf said. Several loans have already been affected by deteriorating market conditions and international banks are now unwilling to underwrite deals in the six oil-producing Gulf Cooperation Council (GCC) states, bankers said.
Bankers expect volume to plummet in the fourth quarter. The Middle East has borrowed $ 91bn by the end of the third quarter, which is 16.5 percent down on last year’s $ 109bn figure for the same period, according to Reuters Loan Pricing Corp data.
State-owned Qatar Investment Authority has ditched plans to secure a refinancing loan and instead opted to repay back its debut $ 3bn loan from October 2007. Kuwait’s Global Investment House increased the margin on its $ 410m, three-year term loan by 35 basis points (bps) to 210 bps over LIBOR, a banker close to the deal said after the deal was launched in the immediate aftermath of Lehman’s collapse.
Dubai government-owned entities, known collectively as Dubai Inc, have had a busy year in the loan market, but some of the deals have been hit by falling liquidity as well as an oversupply of paper. Borse Dubai is finding it very difficult to find bank support to refinance the company’s $ 3.78bn loan that matures in February, as reported by Reuters Loan Pricing Corp last week.
Port & Free Zone World, a subsidiary of state-owned investment group Dubai World, reduced its loan to $ 1.003bn-equivalent from $ 1.25bn. A $ 1.5bn, five-year loan for DIFC Investments, the investment arm of the Dubai International Financial Centre (DIFC) has been under discussion since July but is now in doubt, banking sources close to the deal said.
Barclays, Deutsche Bank, Dubai Islamic Bank, Emirates Bank, Goldman Sachs and Mashreq Bank had been lined up to arrange the financing, but Barclays has now withdrawn its support, a banker close to the deal said.
Dubai Aerospace Enterprise has been in the market with a $ 1bn loan since July, but the leads are currently in talks over the future of the deal and may even decide to pull it, bankers close to the deal said. Investment Corporation of Dubai agreed an underwritten $ 6 billion loan prior to the crisis, but lenders on the deal were surprised when the firm drew down the entire facility last week, a banker said.
ICD’s deal had a sticky syndication and senior bankers were forced to support it on a club basis after failing to attract support in syndication amid market turmoil. ICD’s decision to draw the whole loan has taken scarce and expensive dollar liquidity out of the EMEA syndicated loan market that could have been used elsewhere, bankers said.
