Qatar seen looking abroad for $88bn funds

International banks will be called on to help finance Gulf state's World Cup construction
Qatar seen looking abroad for $88bn funds
By Bloomberg
Fri 23 Mar 2012 11:31 AM

Qatar’s
lenders need international banks to help finance as much as $88bn
of construction for the 2022 soccer World Cup as deposits in the
energy-rich Persian Gulf emirate fail to keep pace with loan demand.

Local banks’
capacity to lend may be declining as a pickup in borrowing,
particularly by state-owned enterprises, squeezes liquidity. The ratio
of Qatari credit facilities to deposits soared to 112 percent in January
from 91.8 percent six months earlier in July, according to Bloomberg
calculations based on central bank data.

The country
with the third-largest natural gas reserves will need to fund stadiums
planned for the world’s most-watched sporting event, as well as hotels,
roads, a bridge to Bahrain and a new city to house 200,000 people. Qatar
Rail Co said it will tender as much as $14bn in tunneling and
station contracts next month, part of a planned $38bn rail system.

“In terms of
overall size and substance compared to the projects which are coming
out, we have a limited scale,” Raghavan Seetharama, Doha Bank’s
chief executive officer, said in an interview in Doha, the Qatari
capital. “There could be the blend of international institutions as well
as local banks when it comes to project finance.”

Qatar’s
bonds have been rising as perceptions of the nation’s credit quality
improve. The cost to insure Qatari debt is the second lowest in the
Middle East after Abu Dhabi, according to credit-default swap prices
compiled by data provider CMA. The contracts dropped 33 basis points in
the two months ended March 21 to 114.4, according to CMA, which is owned
by CME Group Inc. and compiles prices quoted by dealers in the
privately negotiated market.

The yield on
the country’s 4.5 percent security maturing in January 2022 fell 29
basis points to 3.99 percent in the two months to today. That outpaced
the 20 basis-point drop through March 21 in the average yield for the
HSBC/NASDAQ Dubai Middle East Conventional Sovereign US Dollar Bond
Index.

Qatar,
which borders Saudi Arabia and has about the same area as the US
state of Connecticut, was awarded the 2022 World Cup in December 2010,
beating out the US, Australia, South Korea and Japan. The country,
whose population of 1.8 million people is concentrated in Doha, pledged
to build nine new stadiums, refurbish three others and construct
training facilities.

A total of
$9bn will be spent on sporting facilities alone for the event, the
government’s planning board said in the October report.

Qatar
also pledged to complete projects that were already planned, including
the 40km bridge to the neighboring island nation of
Bahrain and the rail and metro system. Most of the work will be
completed in seven years, Prime Minister Sheikh Hamad Bin Jasim Bin
Jaber Al Thani said in December 2010.

Local banks
have anticipated the construction boom by raising capital to ensure they
can grab their share of loans. Doha Bank sold $500m in bonds
after meeting investors this month, while government-owned Qatar
National Bank raised $1bn in a debt offering last month.
Barwa Bank, an Islamic lender that is the country’s newest bank,
completed a QR1.7bn rights issue earlier this year.

Al Khaliji, which created a contractor-finance division for the World Cup, and closely held International Bank of Qatar
have both announced plans for bond sales of as much as $750m. Al
Khaliji counts Qatari Diar Real Estate Investment Co., part of the
sovereign wealth fund, as its biggest shareholder and International Bank
of Qatar’s chairman is the prime minister.

Masraf Al Rayan, Qatar’s
second-biggest Islamic law- compliant lender, projects 20 percent
lending growth this year, according to Chief Financial Officer Mohamed
Salam Mursal. Total credit extended by Qatari banks surged 24 percent in
the year to January, while money supply advanced 11 percent, central
bank data show.

“Liquidity conditions in Qatar
tightened by quite a bit in the second half of last year,” said Nick
Stadtmiller, the Dubai-based head of fixed-income research at Emirates
NBD, the UAE’s biggest bank by assets. “Between July and
November of last year, Qatari banks lost deposits and grew their loan
portfolios, creating a double squeeze.”

Last month,
the central bank said it’s increasing risk- reserve requirements to
preserve lenders’ stability. Banks must hold capital equal to 2.5
percent of their assets within two years, up from 1.5 percent. Qatar’s
central bank is also issuing about QR4bn a month of treasury
bills to banks to enhance their liquidity, the bank’s governor,
Abdullah Saud Al Thani, said in a Bloomberg Television interview last
month.

Some government projects in Qatar,
including a new airport and seaport, have been financed with the
state’s own funds so far. That hasn’t been a problem given rising
exports of liquefied natural gas, which made Qatar’s economy the fastest- growing in the world for the past two years, according to the International Monetary Fund.

Last year,
gross domestic product surged 15 percent, according to the government’s
planning office. While the government says economic growth will slow
this year, GDP is still forecast to increase 5 percent. Qatar’s
oil and gas exports will average $83bn a year between 2011 and
2016, according to a government report released last year.

“They’re in
the incredibly enviable position of not actually needing to borrow
anything,” said Akber Khan, an asset-management director at Al Rayan
Investment in Doha. “The government could equity-fund their entire plans
if they wished, but borrowing makes for a more efficient business model
and enhances returns.”

Qatar
plans to invest $65bn in infrastructure between 2011 and 2016,
according to Beltone Financial, a Cairo-based investment bank. The
country budgeted more than QR40bn ($11bn) for
infrastructure for the 12 months ending March 31, and won’t cut this
amount for the next fiscal year, Prime Minister Hamad Bin Jasim Bin
Jaber Al Thani said January 23.

“The volume
of projects will lead to significant demand for trade finance products
from our local and international customer base,” according to Simon
Penney, the chief executive officer for the Middle East and Africa of
Edinburgh-based Royal Bank of Scotland Group Plc.

HSBC
Holdings, based in London, lent money to the $10.3bn Barzan
gas project last year and was a joint lead manager for Qatar’s
$5bn sovereign bond offering, according to Abdul Hakeem
Mostafawi, who heads the bank’s operations in the emirate. “We will look
into opportunities of project financing or funding” and may advise the
government, Mostafawi said in an e-mail.

Barclays, Bank of America Corp and Standard Chartered, which
participated in a $7.2bn syndicated loan for Barzan last November,
are also among the foreign banks that have financed Qatari ventures.

“I don’t
think there are any risks to finding funding for these projects,” said
Perihan El-Husseini, an economist for Beltone, who authored a report on Qatar
entitled “Money supply growth barely meets demand for credit,” released
last month. “If they can’t find it domestically, they will probably
find it from abroad.”

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