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14| pfi | Middle East Report 2010 FI issuance

Looming FI debt


articular quasi-sovereign and corporate names have had to face up to serious issues in meeting all their debt obligations in recent months. These problems, at the likes of Dubai World , Saad Group and Algosaibi Group , have caused many headaches for policymakers and the banks that lent them the money during the boom times. The coming months have the potential to see the turn of banks behind the cue-ball as a lot of the money that they borrowed during that same surge of lending between 2006 and 2008 is now coming due. Billions of dollars- worth of financial institution (FI) loans and bonds are set to mature in 2011 and 2012. However, the bond market has only shown appetite for new FI issuance from a limited number of institutions, while the FI loan market has seen only one deal done since late in 2008. Therefore, with this mountain of debt com- ing due, will the GCC region be hit with a new debt prob- lem?

The extent of the problem is clear. The last glut of bond issuance from the GCC countries, prior to the credit crunch, was in 2006. Therefore, any five-year paper that was issued during this period will be due to mature in 2011. Banks with such maturities include Riyad Bank (US$500m due April 2011), Arab Banking Corporation (US$300m due July 2011) and Abu Dhabi Islamic Bank (ADIB) (US$800m due December 2011).

Of greater significance is the loan market, where the majority of FI borrowing by GCC banks has taken place. Five-year money taken out in 2006 and 2007 – this includes the likes of Kuwait Finance House (US$850m due March 2011), Union National Bank (US$1bn due Novem- ber 2011) and Qatar National Bank (US$1.85bn due July 2012) – will mature through 2011 and into 2012. However, there are also three-year facilities that were raised in 2008, when the GCC region was regarded as

Banks have a significant amount of loan and bond debt to refinance through 2011 and into 2012. Can it all be done? asks David French.

being immune to the troubles of the wider global econ- omy, that are also due. These include National Bank of Fujairah (US$210m due June 2011) and Bank Muscat Al Ahli Al Omani (US$375m due July 2011). Compounding the refinancing issue will also be the vast step-up in pricing that any bank will have to swallow. These facilities were raised when funding costs were among the cheapest ever seen in the region. National Bank of Oman paid just 27bp over Libor when it raised a US$325m five-year facility in August 2007. Not even top- rated Western European corporates could achieve such pricing levels if they came to the market today. While there is a lot of money to be rolled over or paid back over the next 24 months, the good news is that each institution only has one or two facilities due in that time. More importantly, bankers say that banks are also on the ball and have begun to look at ways to meet the maturities.

So what are their options? Most, if not all, shops shouldn’t have too much problem in paying back these facilities from capital reserves. However, if they want to refinance the liabilities, then the loan and bond markets will be the routes which they will look to. In terms of the bond market, the recent spate of issuance has seen a number of FIs tap the market suc- cessfully. Speaking around the end of Ramadan, bankers said there were about half a dozen banks that had lined up lead managers to undertake a DCM issue in the fourth quarter of the year. Some of these have already taken place (Burgan Bank and Qatar Islamic Bank have completed dollar deals, while National Bank of Abu Dhabi has completed roadshows with euro accounts but is waiting for a decline in the euro/US dollar hedge before printing a euro-denomi- nated bond), while ADIB was due to begin roadshowing in mid-October and Doha Bank has made no secret of wanting to do a Q4 deal.

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