Standard Chartered Sees 15% Loan Decline in Mideast, Africa

Standard Chartered Plc expects lending for projects in the Middle East and Africa to decline 15 percent this year after a Saudi Arabian petrochemicals plant boosted project finance loans to a record $87.6 billion in 2013.

“Some of the monster deals that were done in 2013 are not anticipated this year,” Ravi Suri, the bank’s head of project and export finance for Europe, the Middle East, Africa and South Asia said Jan. 30 in Dubai. “We’ll see activity in power, fertilizers and renewables, although at reduced levels.”

Most new projects are planned in Saudi Arabia, Oman and Morocco, he said. Sadara Chemical Co., a venture of the Saudi Arabian Oil Co. and Dow Chemical Co., raised $10.5 billion last year from bank loans in the region’s biggest petrochemicals financing deal. The money will help fund its $19.3 billion chemicals project in Saudi Arabia’s Eastern Province.

Governments in the oil-rich six-nation Gulf Cooperation Council are investing 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. Oman Oil Refineries & Petroleum Industries Co., a state-owned company, is seeking $3 billion to help finance an upgrade.

Project Bonds

Regional and foreign banks in the Middle East and North Africa are flush with cash and funding isn’t a problem for good projects, Suri said. The reliance on project bonds for funding will grow in the future as the implementation of Basel III capital rules for banks makes loans more expensive and local regulators impose large exposure limits, he said. At least two project bonds from the Gulf are likely this year, he said.

Standard Chartered was the second-biggest arranger of syndicated loans in MENA last year, behind HSBC Holdings Plc, according to data compiled by Bloomberg. Syndicated loans in MENA jumped 20 percent last year to $50.1 billion helped by interest rates near record lows, according to the data.

Ruwais Power Co. placed $825 million of bonds due in 2036 in August in the first sale of project bonds in dollars last year. Sadara Chemical in April raised 7.5 billion riyals ($2 billion) from the sale of 16-year bonds.

Lending Limits

Banks are required to hold more capital for every dollar they lend under new rules from the Basel Committee on Banking Supervision to help prevent a repeat of the bank rescues that followed the 2008 collapse of Lehman Brothers Holdings Inc. Regulators in the United Arab Emirates have also imposed limits on how much banks can lend to governments and their companies.

The U.A.E.’s three-month Emirates interbank offered rate, a benchmark used to price some loans, was at 0.81286 percent today, the lowest since at least 2006 when Bloomberg began collecting the data. The three-month interbank rate in Saudi Arabia was at 0.95625 percent.

Banks are increasingly facing technology risk while evaluating the long-term viability of project loans, according to Suri. Developments in areas such as nano-technology and three-dimensional printing may affect the way banks structure longer loans, he said.

Banks will need to consider “lower debt-equity ratios, shorter tenors, and the use of efficacy insurance” to mitigate such risks, he said.

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