Barclays Says GCC Refinancing Spurs Mideast Syndicated Loans

Middle East syndicated lending is rebounding from a three-year low as companies seek to lock in cheaper funding costs to repay debt maturing this year and in 2014, according to the regional head of Barclays Plc. (BARC)

Regional loans surged nearly 50 percent in the first quarter from a year earlier to $15.2 billion, led by borrowings from the United Arab Emirates, John Vitalo, chief executive officer for the Middle East and North Africa, said in a May 2 interview. Full-year syndicated loans should be “meaningfully” higher than 2012 as companies refinance debt, he said.

“Market conditions now are conducive to borrowing, reducing loan margins leading to an overall reduced cost to the borrower,” Vitalo said at the Barclays office at the Dubai International Financial Centre. “There’s also a hunt for yield by the international banks given their demand-starved markets” and interest from regional companies to borrow, he said.

Some $30 billion of Middle East loans need to be refinanced between now and the end of the year, according to estimates of Barclays, which ranks as the 14th biggest arranger of MENA syndicated loans this year, according to data compiled by Bloomberg. Abu Dhabi government-run Mubadala Development Co. raised $2 billion in March from a three-year revolving credit facility to replace an older loan due in May, the data show.

Lower Rates

Interest rates have declined as competition intensifies among banks and lenders look to park extra cash in loans as Gulf Arab governments plough billions of dollars into infrastructure and industry. Mubadala is paying 45 basis points above the London Interbank Offered Rate on its loan, down from 75 basis points on the same credit facility three years ago.

“Clients are doing some forward thinking to take out these maturities while the conditions are good,” Vitalo said. Current “client dialogue would indicate that this trend will continue.”

Investment Corporation of Dubai plans to lower its spread to 215 basis points on the $2 billion five-year syndicated loan it’s raising to repay an older loan due in August, a banker familiar with the matter said in March. The Dubai government paid a 325 basis-point spread on a six-year securitization deal backed by road toll receipts in 2011, according to a banker.

MENA syndicated lending is recovering from a drop of 4 percent last year to $42 billion, the lowest in three years, according to data compiled by Bloomberg. So far in 2013, BNP Paribas SA (BNP), France’s biggest bank, and Standard Chartered Plc (STAN), the U.K. bank which earns most of its profit from Asia, are the top-ranked Middle East loan arrangers, the data show.

M&A Activity

Middle East mergers and acquisitions business is also “bouncing back” after the fee pool from advising on regional deals dropped 80 percent between 2007 and 2011, Vitalo said. Barclays has advised on six consolidation deals valued at $12.6 billion this year, making it the top-ranked M&A bank in the Middle East and Africa, according to data compiled by Bloomberg.

“It’s a multi-year road before we get back to the 2007 kind of levels,” he said.

The lender is helping Egypt’s Orascom Construction Industries transfer its shares to Amsterdam, as well as advising on “around half a dozen” transactions involving regional sovereign wealth funds and state-owned enterprises, Vitalo said.

Gulf Cooperation Council banks, including Qatar National Bank SAQ and Emirates NBD PJSC, have also acquired lenders in Egypt since December.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net; Stefania Bianchi in Dubai at sbianchi10@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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