Mideast Borrowers Return to Loan Market After ‘Arab Spring’

Sabic Capital, Commercial Bank of Dubai, and Investment Corp. of Dubai are leading a 43 percent increase in lending to Middle Eastern companies as political unrest in the region wanes.

Middle Eastern borrowers are in the market with $5.5 billion of loans, which if completed would bring second-quarter volume to $11.5 billion, according to data compiled by Bloomberg. That compares with $8 billion raised in the first quarter.

Companies are returning to the market after the so-called Arab Spring toppled autocratic leaders in Egypt and Tunisia. The cost of insuring Egyptian debt against default tumbled to the lowest since Tunisian ruler Zine El Abidine Ben Ali fled following weeks of protests against unemployment, corruption and dictatorship in January. President Hosni Mubarak of Egypt resigned less than a month later.

“At the start of the year there was a lot of uncertainty about the Arab Spring and the popular uprisings in the Middle East,” said Dirk Hentschel, head of distribution and loan syndication for Europe, the Middle East and Africa at WestLB AG in London. “That has improved a bit now and we’re seeing an increasing pipeline of deals.”

‘Safe Haven’

Dubai’s Investment Corp., the government’s main holding company, is in talks with banks to refinance a $4 billion term loan with a new $2.8 billion facility. Even after the tensions have subsided, the interest on the deal of 350 basis points over the London interbank offered rate is higher than the average 215 basis-point margin for Dubai loans over the past year, according to Bloomberg data. Borrowing costs have been elevated ever since state-owned Dubai World was forced to restructure about $25 billion of debt in 2009.

“Dubai has emerged as a safe-haven,” said Raza Agha, Middle East and Africa economist at Royal Bank of Scotland Group Plc in London. “You can see that many of the deals coming out involve them and Saudi Arabia, both of which are perceived to be relatively less vulnerable to the situation in Middle East and North Africa.”

A basis point is 0.01 percentage point. Libor is the rate banks charge to lend to each other.

Commercial Bank of Dubai, which is 20 percent-owned by Dubai’s government, hired Commerzbank AG to arrange a new $400 million loan to refinance a facility expiring this year.

Suspended Negotiations

Sabic Capital, a unit of government-owned Saudi Basic Industries Corp., this month appointed five banks to arrange a $2 billion revolving-credit facility paying 40 basis points over Libor. State-owned Saudi Arabian Oil Co., the last Saudi borrower to raise funds in the syndicated loan market, paid interest margins of 13 basis points and 16 basis points over Libor for one-year and five-year credit lines in November.

Borrowing remains subdued compared with last year, when banks lent $22 billion to Mideast and North African companies in the second quarter.

Cairo-based Egyptian General Petroleum Corp. suspended negotiations for a new $2 billion loan after 18 days of protest forced Mubarak to resign on Feb. 11. EGPC, which asked banks to submit bids for a five-year term loan by Jan. 17, abandoned talks with lenders and said a decision would not be made until calm returns to the region.

Pro-democracy movements continue to face state crackdowns in Yemen, Bahrain and Syria, and in Libya are backed by the United Nations.

Group of Eight nations said last month they would help support democratic transition in Egypt and Tunisia by making at least $40 billion available to their governments through grants and loans. The International Monetary Fund says the region will need more than $160 billion over the next two years.

Egypt’s five-year credit default swaps slid to 292 basis points last week, the lowest since Jan. 14. The cost of insuring the nation’s bonds against default rose 7 basis points today to 310 basis points, according to CMA.

“The CDS spread widening we saw in the aftermath of the crisis has reversed, although spreads are not back to pre-crisis levels,” RBS’s Agha said.

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