(MENAFN - Khaleej Times) The syndicated loan market is back. We're enjoying the busiest time for new deals in the region since 2008, as a real estate and economic revival finally takes hold. The question is, is it here to stay?
During the crisis, Middle East borrowers had found it challenging to raise money from the loan markets as quite a few MNC banks had become inward looking and withdrawn from the local markets here on account of losses in their domestic markets. The funding costs for local and regional banks had moved considerably north as it became more and more expensive to borrow from the loan and capital markets.
Middle East syndicated lending has bounced back from a three-year hibernation as companies seek to take advantage of the current benign environment. The rush is also largely on account of the positive takeaways from the crisis. The successful restructurings in the region on the back of ample support from the government, and hardly any haircuts have ensured that MNC banks are back with the old aggression.
This year alone we have seen major new deals from Investment Corporation of Dubai, MAF Group, Atlantis, Aabar Investments, Mubadala, Emirates and Air Arabia. At the same time, major borrowers like Dubai Duty Free, Emaar and JAFZ have returned to the market to renegotiate margins, taking advantage of banks awash with cash. The annual Loan and Bond conference has always drawn interest, however the one held this year in May has been the best attended so far, both from banks as well as corporates, the optimism and enthusiasm in the air was seen to be believed.
Speaking exclusively to Khaleej Times, chief executive of Commercial Bank International (CBI) Kris Babicci said the surge in the loan markets is also helped by the local and regional banks' desire to aggressively grow their asset book on the back of the excess liquidity in the market.
"It has been interesting to see that the bookrunners in most of the recent syndicated transactions have a much higher final hold than other large ticket participants, which clearly suggests the current strong appetite that banks possess. This fact is further demonstrated by either the sudden disappearance of GCC names from the MNC banks' axe sheet or a considerable fall in the earlier offered discounts."
The loan market in the region is as healthy as ever, providing a measure of just how far we as a region have come. As the global economy continues to stumble from one crisis to the next, GCC countries have been quietly rebuilding their economies after the crisis. In 2009 syndicated loans for all of GCC totaled 37 billion. Last year, "we've already seen deals totaling over 50 billion".
"We have been well prepared for this opportunity by way of starting a Syndication and Capital Markets desk in 2012, expanding our team, leveraging on our relationship with Qatar National Bank (the strongest bank in the world) and actively pursuing opportunities in markets where Qatar National Bank has a presence. In 2013, our planning and efforts have borne fruit, as we were mandated as Co-Leads in three capital market issuances, appointed Mandated Lead Arrangers in eight transactions and have committed more than 530 million in the primary syndicated transactions."
But is this sustainable? Well, let's look at the drivers. Firstly, the real estate market, which in turn, is influenced by macro economic trends. The GCC economies have experienced consistent growth in the last three years, the key drivers being oil, trade, logistics, hospitality and retail. The general belief is that the upward trend is expected to continue on the back of the consistently improving fundamentals which in turn leads to improved confidence.
"Of course, we found out the hard way that the GCC is not immune to global strife. Another global crisis, an escalation in Syria, or a real estate crash could always derail the economy and hence the loan market. Lenders and borrowers both have a duty to act responsibly and conduct transactions that will provide stability and a sense of security for all stakeholders."
The syndicated loan market is enjoying the healthiest period in years, underpinned by solid fundamentals. The immediate future is bright, it's now up to all of us to ensure the trend is here to stay.