Citigroup Sees Persian Gulf Banks Borrowing on Oil Slump

Citigroup Inc. sees debt sales by Persian Gulf financial institutions increasing as the slump in crude prices prompts banks to make up for falling government deposits.

“We expect debt capital market and syndicated loan activity to be better this year given lower oil prices,” Atiq Ur Rehman, the New York-based bank’s chief executive officer for the Middle East and North Africa, said in an interview in Dubai. “Increased activity is coming from financial institutions as they shore up liquidity and capacity for future needs.”

Banks in the oil-rich region are raising funds through bonds and loans as liquidity falls and countries park less cash with local lenders. Governments, related entities and national oil companies are among the largest depositors in the region’s lenders, providing between 10 percent and 35 percent of non-equity bank funding, according to a report last month from Moody’s Investors Service.

Banks in the Gulf Cooperation Council have raised $5.3 billion through bond sales this year, up from $4.4 billion a year earlier, while overall sales were little changed at about $8.1 billion, according to data compiled by Bloomberg.

Brent crude, a benchmark for half of the global oil trade, has declined about 45 percent in the last 12 months and gained 2.3 percent to $57.87 as of the close of trading April 10.

Citigroup is the third-largest bond underwriter in the Gulf region this year, trailing HSBC Holdings Plc and National Bank of Abu Dhabi PJSC, though it’s up from eighth last year. It’s also the ninth-largest arranger of syndicated loans, up from 22nd in 2014, according to data compiled by Bloomberg.

Of the six bond deals Citigroup has worked on, five of them have been for banks including Emirates NBD PJSC and National Bank of Abu Dhabi PJSC, according to the data.

IPO Return

Citigroup, based in New York, is exiting its consumer-banking business in 11 countries to focus on markets where it has the greatest scale and growth potential. The lender received bids from banks including Emirates NBD and Mashreqbank PSC for its consumer-banking business in Egypt, people with knowledge of the matter said in January. The bank has said it expects to complete most of those sales this year.

Ur Rehman also expects initial public offerings to return this year in the Middle East “on the back of lower oil prices as an alternative form of finance,” he said.

Some companies are reconsidering share sales after the plunge in oil prices in the second half of 2014 sparked a selloff in equity markets and halted deals.

Senaat, which owns Abu Dhabi companies including National Petroleum Construction Co. and Emirates Steel, last month said it plans to sell shares in a unit this year after postponing its own IPO in 2014. Qatar Exchange is also considering a stock sale, chief executive officer Rashid Al Mansoori said in March.

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