Overtaken by the slowdown

It is easy to be overtaken by events when you write for a monthly magazine - especially when that magazine covers the rapidly evolving financial industry in the Middle East.

This letter last month predicted that Abu Dhabi would be launching its maiden bond issue in August. Hours after ABF went to press, the emirate promptly announced that the transaction had been concluded.

This magazine expressed confidence that securitisation would shortly take off in the region - shortly before securitised sub-prime mortgages caused chaos in the US.

Equally, our feature on syndicated loans, in which every person interviewed said that their bank had no trouble shifting debt from the Middle East, could have looked a little short-sighted as Western markets launched into a credit crisis. The Federal Reserve baled out the US market with emergency injections of liquidity on a scale not seen since the 9/11 attacks damaged investor confidence, and several large buyouts were cancelled because borrowers could not find a secondary market for the debt required for their transactions.

However, the Middle East hardly seemed to suffer. As with Grey Tuesday, when Chinese stock market wobbles caused substantial corrections in Western bourses, the region continued business as usual.

Of the GCC stock markets, the Dubai Financial Market and Abu Dhabi Securities Market dipped, but international institutions still do not make up a particularly large part of the investor base and it cannot be said that there is any strong correlation between these markets and the rest of the world.

In fact, many investors from the Middle East and Asia now find themselves in a position of strength. The liquidity in these regions, at a time when cheap money no longer exists in the West, means that private equity firms and banks could have less competition from established markets when chasing assets in the US and Europe, and of course the tightening of credit should result in higher yields on bonds issued in those markets. Those in the market for distressed assets could snap up some bargains.

Those who will feel the pinch are regional borrowers looking abroad, such as Saudi Arabia's Sabic, which was forced to scale back its bond issue last month by almost half.

In the end, though, the Middle East has more than enough liquidity to see it through tight periods. The current situation might act as a useful reminder that capital will eventually become harder to obtain in this region. When it does, there need to be financial mechanisms in place to ensure that business goes on.

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