Middle East and North African companies may need to rely more on regional banks as well as bond sales to refinance borrowings as the debt crisis forces many European lenders to cut loans, Standard Chartered Plc said.
The decline in liquidity and a shortage of U.S. dollars at some European banks may create “tensions” for some Middle East companies as they seek to refinance debt over the next 12 to 36 months, Viswanathan Shankar, who was appointed to Standard Chartered’s board on Dec. 12, said in an interview in Dubai today. This may also push up interest rates next year, he said.
Shankar, who will become Standard Chartered’s group executive director from Jan. 1, said he wouldn’t be worried about Dubai’s refinancing needs in 2012 as the economic levers that drive the emirate are doing well and it benefited from the political unrest in other parts of the Middle East.
The six-nation Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, and Egypt have about $80 billion of debt maturing this year and the next, Royal Bank of Scotland Group Plc said in March. Dubai, the Persian Gulf’s trade and tourist hub, has about $13.8 billion in bank loans and bonds coming due from the fourth quarter of 2011 and until the end of 2012, Moody’s Investors Service said Dec. 6.
European “banks need to reduce their balance sheet, and it is highly unlikely that they will reduce that in their home markets, or even in the neighboring markets,” Shankar said.
“Some of the regional banks from the U.A.E., Kuwait, Qatar or Saudi can play a role in filling that dollar void, although the question is whether they can fill that entire void,” he said.
Middle Eastern companies will need to use a combination of bond and asset sales, cut back spending and tap the syndicated loans market to meet their funding needs, he said.
Syndicated loans in the Middle East and North Africa will probably rise to about $30 billion or $40 billion in 2012 from $25 billion this year, helped by the need to refinance loans and fund infrastructure spending in countries like Qatar, Standard Chartered said yesterday. About 30 percent of the region’s loans may have been contributed by European banks, Shankar said.
Standard Chartered expects its revenue in the Middle East and South Asia to grow in the “high single digits,” with profitability improving as well, Shankar said. The bank earned revenue of $2.2 billion from the Middle East and South Asia regions in 2010, according to its financial results.
The bank is the second-biggest arranger of bond sales for Gulf Cooperation Council governments and companies this year, after HSBC Holdings Plc. It was one of the managers for the Qatar government’s $5 billion of bond sales in November.