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Gulf banks increase lending footprints in Asia, Africa

Gulf banks increase lending footprints in Asia, Africa

Previously Gulf banks largely participated as junior partners in international syndicated loans but that picture is changing gradually.

An $85 million loan taken out by a Ugandan bank this year points to an emerging trend in international capital markets: the rise of the Gulf as a syndicated loan market for Africa and Asia.

Stanbic Bank Uganda originally intended to raise $75 million through the 18-month deal in January, but expanded that because of strong interest from banks wanting a slice of the business.

The list of participating banks eventually included Dubai’s Emirates NBD, which was sole co-ordinator and bookrunner, mandated lead arranger Al Ahli Bank Kuwait , and Qatar’s Al Khalij Commercial Bank and Commercial Bank of Qatar as lead arrangers, as well as Western heavyweight Standard Chartered.

“The Gulf banks have not faced the same regulatory and capital constraints that European banks have faced, so they are able to provide liquidity to African banks,” said Patrick Mweheire, chief executive of Stanbic Bank Uganda.

Several years ago, Gulf banks largely participated as junior partners in international syndicated loans; they rarely took most of the key management roles in syndications or dominated them by volume of money provided.

Over the last six months, several deals have suggested that picture is changing, for a wide variety of reasons – not all of them under the control of the Gulf banks.

When ICBC Financial Leasing, a wholly owned unit of Industrial and Commercial Bank of China, raised a $500 million, three-year loan last November, eight of the 10 banks involved were from the Gulf. There were three mandated lead arrangers and bookrunners: Emirates NBD, Qatar National Bank and ICBC itself.

South African bank FirstRand raised $235 million in a two-year loan last week; the entire deal was syndicated to nine Gulf lenders, with Emirates NBD the sole arranger.

Other Asian companies to have tapped the Gulf loan market since last year include Indonesian auto financing firm Astra Sedaya Finance and airline Garuda Indonesia. Chinese equipment leasing company Far East Horizon is currently arranging a Gulf loan.

“Recently the leading banks in the GCC (Gulf Cooperation Council) have started to expand their footprint into Asia and Africa, and this development is providing a new source of bank liquidity in those markets,” said Jonathan Macdonald, global head of syndicated finance at National Bank of Abu Dhabi .

LIQUIDITY

The rise of the Gulf banks as syndicated lenders is partly a natural result of their growth over the last several years. They have opened opened branches and offices in Asia and Africa to take advantage of rapidly expanding trade and investment ties between those areas and the Gulf.

“We have seen more trade flows with the region and want to further strengthen our exposure and footprint,” said Sam Moss, head of investor relations at FirstRand.

She said she hoped it would eventually become possible for African banks to take out loans with longer maturities than two years in the Gulf, as deals became more frequent.

The Gulf is potentially attractive as a loan market because many banks are awash in spare funds. Although oil export revenues have plunged since last year, governments have managed their assets to ensure that total deposits in the banking system have continued to grow, so liquidity has not tightened.

At the same time, most Gulf banks have built up comfortable capital cushions, so they have scope to lend. This contrasts with many Western banks, which face cost-cutting and regulatory pressures to improve capital adequacy in their home markets.

Other factors are also at work. Corporate borrowers in Asia have traditionally relied heavily on Taiwanese banks for retail syndication of loans; those banks have pulled in their horns somewhat as their cost of funding has risen, so some Asian firms are now looking to diversify their loan sources.

The total volume of Gulf syndicated loans to Asian and African firms is still small by global standards. NBAD’s Macdonald said he expected the appetite for such deals among GCC banks to remain selective and limited to the larger lenders.

“Whilst the impact of oil prices has yet to have a material impact on GCC lenders, there are signs that this could change in the second half of 2015,” he said.

“As history has shown, when banks face challenges with capital or funding, they tend to retreat to local markets where long-term customers provide the most reliable returns.”

But as long as bank deposits in the Gulf continue to grow faster than the banks can lend them on within the region, Asian and African companies may continue to benefit from a new source of funding.

“Lending to these borrowers has doubled already in 2015 from last year,” said one Dubai-based syndicator, speaking on condition of anonymity because of commercial sensitivities. “I expect lending to double again in the next year.”

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