Divide and prosper

zoom

Khetarpal: infrastructure and acquisition finance are driving the boom in large scale regional lending.

It may not be receiving the same amount of attention as forms of financing such as sukuk, but the syndicated loan market in the Middle East is currently growing rapidly. What is more, this is giving local banks the chance to strengthen relationships in the region and with overseas or multinational banks.

Rajan Khetarpal, senior manager and head, structured finance and syndications, Emirates Bank, says that regional banks have greatly increased their appetite for syndicated loans over the past five years.

"It used to be only the foreign banks who were coming in and structuring transactions, and the local banks would put out their balance sheets, and were happy just participating, but banks have woken up," he says. "There are other local banks getting into the game and I expect the numbers to grow."

He points out that the GCC economy has grown dramatically in the past five years, creating a demand for investment projects in areas such as infrastructure. The increase in the number of big ticket acquisitions by local private equity firms and investment banks has created a huge need for funding for these deals.

Each acquisition has to be financed, both on the equity side as well as on the LBO side, so that's creating huge opportunities," says Khetarpal. "I personally think the acquisition finance component will spur this on after the infrastructure boom has come down a bit. This activity will keep on spurring syndications and the need for large funding."

Emirates Bank has underwritten syndicated loans of up to US$2.5 bn, but Khetarpal says that even this is not necessarily the bank's upper limit, depending on the deal.

This is just as well, since demand from borrowers continues to rise.

"In the year 2000, the total size of deals that were done on a syndicated basis in the Middle East was $20 bn," says Khetarpal. "In 2006 this figure reached $75 bn. In 2007, I wouldn't be surprised if the figure is close to $100 bn."

Fawaz Abusneineh is country manager, Abu Dhabi International Group, a division of National Bank of Abu Dhabi focusing on cross-border syndications. The group acted as mandated lead arranger (MLA) in recent syndications for National Bank of Umm Al Quwain and Arab Bank, and tries to make sure it is involved in all of the region's major syndications.

"We've underwritten as small as $50m to as large as $500m," says Abusneineh. Abu Dhabi International Group also acted as an MLA in the Mobily syndication in Saudi Arabia recently. "We were the only UAE bank that was an MLA and we were also an arranger and bookrunner," he says. "That was around a $2.875 bn transaction, so the underwriting you can imagine was huge, whereas some transactions you would probably underwrite around $75m or $100m. It was the largest Islamic syndicated loan and one of the most successful transactions. It closed very well and with a heavy over subscription."

He adds: "Because of the high quality assets we underwrite and because of the strong appetite for regional assets, we usually do not find difficulties in selling assets to our target hold levels. Target hold levels differ from facility to facility. But, as a rule of thumb, we keep about 10% of the facility size on our books."

Of course, syndicated transactions are about more than absolute returns. "Syndicated lending is a relationship game, so the more you put in money or the more you show yourself on the loan books, the more the borrower is inclined to do business with yourself," says Abusneineh. "Sometimes pricing is not very attractive, but the relationship aspect is strong."

This was particularly evident in Arab Bank's recent $500m syndicated borrowing, in which Calyon, HSBC and JP Morgan acted as MLAs. "They're not borrowing because they need the money - nor do many financial institutions borrow for that reason, they borrow for profile enhancement," says Dale Summerville, managing director, head of Central and Eastern Europe, Middle East and Africa, global loan syndication group, Calyon.

"This being the first borrowing ever in any market is extremely significant for the group because it really is an exercise in public relations, in profile enhancement in the financial markets, gathering and confirming their core bank support and generating interest amongst those banks via the lending for the ancillary business: bonds, treasury or whatever, going forward.

"It was geared to allow Middle Eastern bank participation. For all of the Middle East FIs that have been borrowing, the average Middle East bank participation is probably about 10 to 15% because obviously one bank is borrowing at rates that are lower than the refunding rates of the banks in the Middle East themselves."

However, in the Arab Bank syndication, Middle Eastern banks made up 40% of lenders by volume and 50% by numbers.

"We voluntarily geared syndication to achieve that," says Summerville. "There were smaller tickets at all levels, we were generous in the fees we gave out and sensitive to the group's relationship banks, which one always is in syndicated lending, but particularly for this transaction."

Currently, the largest arranger of syndicated loans in the region is BNP Paribas. In the first half of this year, the bank arranged 16 loans as bookrunner, and 21 transactions overall. In terms of bookrunning, for the first half it had the largest market share, at 14%, ahead of Citigroup with just under 8%.

"The type of transaction is pretty diverse," says Mark Waters, head of debt capital markets for the Middle East, BNP Paribas. "One of the key strengths of BNP Paribas is that our client base is pretty comprehensive, we service our clients across a broad sector base and also in terms of size, so what you will see is that BNP Paribas will be equally supportive of smaller companies as it would large corporates.

"For instance, you will have seen our name as MLA and bookrunner on a $100m transaction for Tabreed in Abu Dhabi, and that can go up at the other end to a transaction for the Saad Group in Saudi Arabia at $2.75 bn."

BNP Paribas is not averse to taking on a sole mandate, but views each transaction on a case-by-case basis.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM