July 2008 | ifr special report | 13 MIDDLE EAST LOANS ROUNDTABLE
they are very knowledgeable about what's going on in the world and where to get their advantage.
Peter Bulbrook : In the world of Basel II, rating is a very key focus point in terms of how we weight banks. Traditionally we looked back at 20 percent weighted assets or 100 percent on non-OECD financial in- stitutions, but rating and weighing of capital commitment is an incredibly important and probably fast developing feature in the loan market today.
IFR: How important is that rating to you now, because in Turkey we are still seeing banks put in place one year lines at 67.5bp?
Raouf Jundi, Bank of Tokyo-Mitsubishi UFJ
Raouf Jundi : Turkey is a very special situation, because Turkish banks do offer substantial ancillary business. They can spread throughout all the relationship banks and that's why all the deals are clubs.
Declan McGrath : Rating and Basel II has made a significant difference. Just before the end of the year we looked at a bank that was 20 percent weighted on 31 December but on 1 January, under the new BIS II arrangements, it became 179 or 180 percent weighted, depending on what model you used. That's the degree of differ- ential that can actually occur. Now, that's an extreme and it is exaggerated for emphasis only, but banks are paying an awful lot more attention to it.
Peter Bulbrook : It is a wider loan market feature and particularly interesting in terms of exposure in the GCC. Rated corporates will probably find greater favour in terms of capital asks from the in- ternational banking community. Many of us around the table are working with clients on rating assignments right now, there's a lot of corporates seeking ratings, and the benefit to them for that is not just access to capital markets, but it gives a much better, capital friendly dynamic around capital commitment to loan deals and that will help in size and it could well help in price as well. It is something to look forward to this year, and to see how many of these entities get rated and get that public investment grade rating.
Gilles Franck : There's a completely new dynamic now in corporate ratings because of this. Before one or two years ago, it was more tentative, more profile and capital
markets driven, but the regulatory angle now obviously makes a big difference.
Declan McGrath : You have to bear in mind that you don't have to go back that long, just prior to the end of 2006 when there were a few deals, but not a huge amount on the corporate side done out of GCC. It really was 2007 where you saw the corporate transaction come to the fore, and there were lots of different reasons for it, including M&A activity, both inbound and outbound from the region. The concept of the sovereign support gets a lot more attention today than it did a few months ago.
Grainne Molloy : It's a function of the size of the deals that are now being done. The Middle East has seen a steady stream of smaller corporate transactions over the years as the smaller corporates who tradi- tionally funded themselves on a bilateral basis sought to rationalise their funding through the syndicated loan market. The last couple of years have seen more acquisition facilities being done and the size of those facilities has increased.
IFR: Will those smaller deals continue to come?
Grainne Molloy : Yes, but borrowers must be realistic about the pricing levels they can achieve.
Gilles Franck : At the right pricing level there's definitely an opportunity for them.
Peter Bulbrook : They are the kind of deals that just work in a local price context and a
credit story that works best for local banks largely speaking. I agree volume and opportunities are picking up.
Declan McGrath : Banks are starting to look at going further down, for want of a better expression, the credit spectrum within the region, to look for new potential clients.
Peter Bulbrook : Yes, this is the mid cap market within GCC and it is rapidly developing.
IFR: Moving to the infrastructure market, if banks can now lock in margins well into the 100bps for government supported credits over five years, what is the future of the infrastructure market with its need for 10 or 20-year plus tenors?
Raouf Jundi : The first problem in the project market is that capacity has not grown, whereas the size of the projects has grown. Where some of the liquidity has come from multilaterals like JBIC, we all know that JBIC itself is reducing its exposure. The way it's going to function will change later in this year and everyone is expecting that JBIC will provide less liquidity and that is an issue which the project financiers haven't really got to grips with yet.
Declan McGrath : For a long time people would look at the situation of lending for 20 years at LIBOR plus 65bp or 75bp, this continued because there was the availabili- ty of the liquidity for the number of the projects that were around at the time. The world is trying to increase its infrastruc-
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