Tuesday, May 01, 2012
Gulf News
Dubai: Gulf-based business entities, including government-related entities, have more than $60 billion (Dh220 billion) in refinancing commitments to meet this year. Despite the seemingly large size of the requirement, it is no longer a big challenge, said a senior executive with the Royal Bank of Scotland (RBS) yesterday.
We dont see any major issue with refinancing in the region. Most of the companies that have near-term maturities have either arranged to meet the commitments or are in the final stages of arranging the funds, said Jacco Keijzer, head of debt capital markets for the Middle East and Africa.
Although there is a huge opportunity in the market for the regional entities to meet their funding requirements through debt capital markets, Keijzer said the bank loan markets is a playing a big role meeting the funding requirements of regional corporates.
According to RBS officials, local and regional banks are flush with short-term liquidity and have become aggressive players in the bank loan market. Low rates and high liquidity are helping local banks to work as an effective alternative to debt capital market funding.
Lower rates
Driven by cheap short-term deposit driven liquidity, many local banks are willing to lend at lower rates. This has left many international banks to do some soul-searching as they cant offer the same kinds of rates offered by local banks, he said.
However, RBS officials warned that the aggressive pricing by the local banks is largely driven by short-term liquidity and most funding requirements are long-term in nature.
From a long-term perspective banks run the risk of maturity mismatches while any change in the liquidity conditions could impact the pricing of bank loans and the overall cost and availability of funding, Keijzer said.
Bankers said despite the recent surge in the bank loan market, from a long-term perspective the regions debt financing is going through a structural change where debt capital markets (DCM) are likely to take precedence over the bank loan market.
The loan markets are likely to see some volumes because of the low interest rates and relatively lower costs because of the relationship-based banking deals. But we are going through a structural shift in favour of DCM, Philip Southwell, president and country executive for the Middle East and North Africa, Bank of America Merrill Lynch said in a recent interview.
RBS said it has five to ten mandates for bond sales including sukuks in the GCC this year with half of the mandates in the UAE. Its regional CEO said that it was still lending billions of dollars in the region, particularly to entities in the UAE but it has cut down on the number of clients in the region.
We have massively shrunk the number of clients to whom we are lending to now as we have lesser capital to deploy, Simon Penney, RBS chief executive for the Middle East and Africa said.
By Babu Das Augustine, Deputy Business Editor
Gulf News 2012. All rights reserved.
