Structures in a changing landscape

Sebastian Frederiks Head of Wholesale Banking Middle East, ING explains that borrowers are becoming more entrepreneurial with ESG financing boosting demands for syndication, and the most active regional players being Saudi Arabia, the UAE and Oman

Are you noticing greater demand for structured financing as we move further into the postpandemic economic landscape?

There is clearly a higher demand for funds post pandemic. Borrowers have resumed their investment programs and the “maintain the existing investments” approach is being replaced with a more entrepreneurial mode of operations. The Middle East has been a substantial contributor to the deal volumes in the EMEA region, albeit with a slightly reduced number of deals in the pandemic period as compared to the previous years. The market collectively believes that the greatest opportunities for new deal flow should come from two main areas – refinancing’s and local and international M&A activity.

Which regional business or industry sectors are most likely require structured financing in the near to medium term?

ING has a long, rich history of over 40 years in the Middle East. In our view, the most likely sectors in the Middle East that are expected to require investment and new money would be Oil & Gas, Infrastructure and Utilities. The market also anticipates an increased amount of M&A activity in these sectors. We also expect the Financial Institutions sector to increase its borrowing activity – predominantly because of the previous 18 months of Covid disruption. Middle East banks, although safe and stable in their current position, have expressed an intention to improve their “margin of safety” to ensure no surprises may squeeze through the cracks due to financial problems that have been experienced by some of their customers.

Is the regional financial services sector fully equipped to provide for the specialist needs of big business in the Middle East?

It is unlikely that the local lenders will be able to satisfy the increased cash appetites of major Middle East borrowers without the substantial international Financial Institutions assistance. We can only look at the size of some of the latest transactions (PIF 15bn, Aramco 10bn, EGA 5.53bn [albeit a smaller amount than the deal it refinanced], Sadra Chemicals 9.9bn, EIG Perl Holding 11bn). Almost every transaction is oversubscribed, and most are scaled back, which is opportune for the local lenders since as it helps them to remain within the individual borrower limit thresholds. This exceptional liquidity gives rise to what we call “strategic bidding” where banks committing more than they want to hold in anticipation of oversubscriptions and scaleback. This, in turn, leads to an impression of artificially high liquidity.

Sebastian Frederiks Head of Wholesale Banking Middle East, ING

Do you expect to see a greater call for syndicated loans in the Middle East in the coming five years?

Monetary policy of central banks will be the most significant driver of the syndicated loan market over the next 12 months. For the moment the card has been very opportune for active lenders and, hopefully, this will continue into the next year. However, a lot of this will depend on the state of the European and the American economies (on the lenders’ side) with the signs of accelerating inflation being one factor to watch out for. ESG financing (coupled with LIBOR transition) will provide further boost to the ME demand for syndicated loans. One of our key strengths is offering clients is Sustainable Financing and in the Middle East we have already successfully supported several top-tier clients to transition into a more sustainable business through Green Bonds, Green Private Placements, ESG-linked loans and Sustainable Finance Advisories.

Both in terms of the size and number of deals, which regional markets will see the highest levels of structured finance and syndication action in the coming years?

We believe that the most active and successful borrowers will continue to be those from Saudi Arabia, UAE and Oman. At the same time, it is possible that Qatar may start catching up with the leaders in an effort to diversify its economy in the next few years.