Middle East and Africa project finance loans are set to rise almost 15 percent to about $40 billion this year as borrowers seek funds for petrochemicals, power and metals production, Standard Chartered Plc said.
Lending will advance from about $35 billion in 2012 because “infrastructure demand is going to be significant,” Ravi Suri, Standard Chartered’s Dubai-based head of project and export finance for the Middle East, Africa, South Asia and Europe, said in a Jan. 14 interview. Delays in some projects last year had muted demand for credit, he said.
“Power and desalination will be huge,” Suri said. “You will have some petrochemicals, you’ll have infrastructure, roads, solar, renewables will perhaps play a big role.”
Governments in the six-nation Gulf Cooperation Council are investing oil wealth in more than $1 trillion of projects, including schools and roads in Saudi Arabia and stadiums to host the 2022 soccer World Cup in Qatar. Among projects set to raise money in 2013 are Saudi Arabian Oil Co. and Dow Chemical Co.’s $20 billion Sadara Chemical Co. joint venture and Abu Dhabi-based Emirates Aluminium Co.’s $4.58 billion expansion.
Some European banks cut back on project finance loans to the Middle East and Africa last year amid the euro-zone debt crisis, a gap largely filled by regional banks and export credit agencies from Japan and South Korea, Suri said. Middle East and North Africa syndicated lending fell 7 percent in 2012 to $41 billion, according to data compiled by Bloomberg.
Almost 80 percent of the Middle East project finance pipeline this year will be denominated in foreign currencies because interest rates on dollar funds are lower than those on local currencies, Suri said. Companies also prefer longer-maturity funding in dollars “due to the inability to hedge long-term in other currencies,” he said.
The three-month Saudi Interbank Offered Rate, the benchmark used by banks in the kingdom to price some loans, jumped 22 basis points last year, the biggest advance since 2005, to 0.995 percent. The jump, which happened as loan growth accelerated at the fastest pace in more than three years, tripled the spread over the equivalent U.S. rate to 69 basis points, or 0.69 percentage point.
Interest rates may “trend up marginally” this year because of the strong demand for loans, Suri said. There will also be a “lot of activity on project bonds” to fund a infrastructure projects after construction is complete, Suri said. Middle East and North Africa bond sales jumped 54 percent last year to a record $49 billion, data compiled by Bloomberg show.