Asian banks fuel more than US$2 billion loan boom in Middle East

Business Times

13 hours ago

[HONG KONG] Middle East borrowers are ramping up loans that are being syndicated in Asia-Pacific as they look to diversify fundraising beyond global bond and domestic markets.
More than US$2 billion of Middle East deals targeting Asian bank liquidity have launched in recent weeks, including Saudi Electricity's US$1 billion loan, Banque Saudi Fransi's US$750 million facility and a US$500 million financing for Al Ahli Bank of Kuwait.
The growing need for Middle East borrowers, primarily those from the Gulf States, to look beyond domestic capital markets comes as many regional economies press ahead with expensive diversification plans, in an environment where low oil prices are seen as challenging growth and finances.
Saudi Arabia is running a fiscal deficit, with oil prices being far below the level of US$92 a barrel, the International Monetary Fund says it needs to balance its budget. That's led to the government and Saudi companies ramping up borrowing to fund Crown Prince Mohammed bin Salman's US$2 trillion transformation programme.
Meanwhile, Qatar, Kuwait and the United Arab Emirates are among others that have agendas that will require heavy investment over several years to diversify revenues away from traditional energy sources.
'Middle Eastern borrowers, given the significant borrowing requirements, have been much more open to diversifying their lending relationships and willing to tap into the demand from Asia,' said Amit Lakhwani, global head of loan syndicate at Standard Chartered.
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Asia also offers opportunities to borrow in new currencies or tenors versus what is available to them in the Middle East market, he added.
The volume of loans raised by Middle East borrowers in Asia-Pacific touched a six-year high of US$5.2 billion in 2024, according to Bloomberg-compiled data. The flurry of recent deals also follow the closing of Qatar National Bank's US$2 billion borrowing in March that drew nearly 30 lenders, largely comprising Chinese, Japanese and Taiwanese banks, the data showed.
Such deals have historically done well in Asia. There's a huge demand from Asian banks to join the loans of Middle Eastern borrowers, given the dearth of transactions back home. The volume of syndicated facilities – denominated in the US dollar, euro and Japanese yen – slumped 30 per cent to US$53 billion so far this year in Asia-Pacific ex-Japan, according to Bloomberg-compiled data. That's the lowest tally in at least a decade.
Moreover, not only do companies from the Middle East often have better credit ratings, but such deals are able to offer higher returns versus similarly-rated Asian entities, said Aaron Chow, managing director for loan capital markets, Asia-Pacific at Sumitomo Mitsui Banking.
The recent five-year loan of Saudi Electricity, which is rated A+ by Fitch, pays an interest margin of around 85 basis points over the benchmark Secured Overnight Financing Rate. In contrast, the recent nearly five-year borrowing of South Korea's Shinhan Card, which is rated A by Fitch, offers a margin of 80 basis points over SOFR.
Still, some of these deals could experience some headwinds given that banks have internal limits on how much capital can be deployed into a specific country and sector. BLOOMBERG