Saudi Aramco Mega Deals Boost EMEA Islamic Loans to Record Start

The slump in oil prices since June has done little to damp appetite for Shariah-compliant credit in the Gulf.

Loan deals worth about $4 billion from Saudi Arabian Oil Co. and its joint venture Rabigh Refining & Petrochemical Co. have fueled the busiest ever start to a year for Islamic borrowing in Europe, the Middle East and Africa, according to data compiled by Bloomberg. About $7.1 billion of loans have been raised so far this year, compared with about $3 billion for the same period in 2014.

The increase in borrowing highlights how companies in the oil producing Gulf Cooperation Council are maintaining investment even after crude prices dropped about 50 percent since June. Shariah-compliant lenders are taking a bigger role in regional deals as the global Islamic finance industry’s assets are expected to almost double in the four years through 2018.

“Islamic banks are growing fast, and for them this is one of the only assets they can really expand into,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by phone yesterday. “Assuming the macro factors remain favorable, we could definitely see this continue.”

Crude Slump

The deal for Saudi Aramco, the world’s biggest oil exporter, included a five-year 7.5 billion riyal ($2 billion) facility and a 3.75-billion riyal one-year Islamic loan. Petro Rabigh’s deal included about $935 million in Shariah-compliant borrowing.

The contracts have catapulted Riyad Bank, Saudi Arabia’s fourth-biggest lender by assets, to the top of the mandated lead arranger league table, followed by Riyadh-based Alinma Bank and Jeddah-based National Commercial Bank, the data show. Riyad Bank finished 18th in last year’s list.

“If things get bad in terms of oil, which I don’t expect, the whole banking sector may calm down,” Bantis said.

Brent crude, a benchmark for half of the world’ oil, dropped to $57.87 per barrel at the end of last week from a high of $115.06 per barrel in June 2014. It sank to $46.59 per barrel in January, the lowest in six years.

Low Rate

Saudi Aramco is among a number of oil companies in the region taking advantage of low borrowing costs to raise funds. Dubai-government owned Emirates National Oil Co. is seeking $1.5 billion in financing, two people told Bloomberg last month, and Kuwait Foreign Petroleum Exploration Co., known as Kufpec, will increase the size of a $1 billion loan to $2.5 billion.

The three-month Saudi Interbank Offered Rate, used as a benchmark for some loans, was 0.77125 yesterday, near the lowest since December 2011. While the three-month London Interbank Offered Rate was 0.27700 on April 10, the highest in two years, it was 15 basis points below the average rate in 2012, data compiled by Bloomberg show.

“There’s still some investment going on, so the oil prices haven’t yet weighed too badly on the capex of the companies, and that’s a positive sign for the growth of the economy,” Montasser Khelifi, a Dubai-based senior manager at Quantum Investment Bank Ltd., said by phone on Sunday. “It will be a good year for loans.”

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