Favored by international experts and regional countries to succeed the six Gulf Cooperation Council - which mostly awash with liquidity after the rise in oil prices for a year - in addressing the challenge of refinancing this year without crises comprehensive.And that governments will intervene if necessary to prevent the failure of companies are huge and not convicted on the repayment of bonds.
They stressed that companies and governments in the Gulf Arab region, facing debts exceed the value of benefits $ 60 billion must be refinanced in 2012 will be forced increasingly to abandon its reliance on traditional funding and the search for innovative solutions in light of the difficult global conditions.
But they pointed out that the process will not always take place smoothly. Market conditions are unfavorable, such as weak property prices and uncertainty about the outlook for the global economy means that the entities, the city had to resort to restructuring of the obligations in talks with creditors.
Non-traditional alternatives
The experts added that other companies may avoid restructuring this year by resorting to alternatives differ from the traditional methods of bank loans and bond market. And increase the spread of already non-traditional financing instruments in the region, such as securitization and repurchase agreements that are being transferred during which the securities for a temporary period in exchange for money.
Said Stuart Anderson, Managing Director and Regional Director for the Middle East at Standard & Poor’s credit rating: I think the stress factors Stanml. Immediate priority is to deal with revisions of funding.
It will need to follow the unconventional steps more urgent for small businesses in the private sector that will be funded channels is severely restricted. But even large government-related entities may try to distance itself from bank loans.
The most rational approach
Anderson said: lines, banks may be cheaper, but diversification is the most rational approach to the space that you maintain and improve the credit structure of the budget.
Entities and the Gulf already completed - even though the number is not known precisely - restructuring or entered into talks to restructure debt of tens of billions of dollars since the outbreak of the global financial crisis in 2008. Is not being announced many of the restructuring negotiations.
Resolution of the maturity of loans and conventional and Islamic bonds worth 80 billion dollars in the Gulf last year, according to estimates by the accounts of Thomson Reuters and company financial center. The total benefits of about $ 69 billion this year and $ 45 billion in 2013 and $ 51 billion in 2014. So if the region was able to pass this year without destabilizing it does have good opportunities to take on the rest of the financial crisis.
The impact of European debt
But the task has become complex due to the withdrawal of European banks from the Gulf over the past year because of debt problems in Europe. This is forcing borrowers to reassess their strategies as the European funding in the past they were the source of about 50% of bank financing in the Gulf Cooperation Council (GCC).
Ghanem said Nusseibeh, founder of Cornerstone Global Associates: interdependence of the global banking system makes financing difficult and this will have an impact on the funding options in the region, no doubt.
And bank loans declined for the region to $ 14.9 billion in the second half of 2011 from $ 26.9 billion in the same period of 2010, according to Thomson Reuters data.
The bank said in a regional bank who requested anonymity: Gone are the days of syndicated loans amounting to billions of dollars. Banks will need to innovate and the flexibility to raise $ 100 million or 200 million here and there.
Institutions outside of Europe
Will examine some of the banks for loans from institutions outside of Europe. In this regard, referred to U.S. banks and Asian, especially Chinese. And many banks be hoping to persuade the banks with which it has longstanding ties in order to extend the benefits into a new loan.
But Daniel Brobbey, investment manager at Silk Invest Asset Management in London says: It is unfortunate that any refinancing of the success of the extension of the debt or not depends on the sentiment raised by global sovereign debt crisis.
Anderson says of the Standard & Poor’s that one possible outcome is that the borrowers depends on a limited number of banks for loans. This may make borrowers are hampered by a snag limits for lending to each institution separately.
He said: The question is to what extent can the region’s banks in the syndicated loan market slowdown to increase their exposure to the big names? And when this becomes a problem for the concentration of bank credit? Will scrutinize regulatory bodies in this matter?
Bank’s exposure to risks
According to Moody’s Investors Service in a report on Emirates NBD that even in September 2011 was 24% of the bank loan portfolio is linked to entities associated with the government of Dubai.
The organization of the report which was released at the end of January this year: such high levels and rising from the exposure to government-related entities is a major obstacle in our assessment of the Bank’s exposure to risk.
And before the face of this problem in Saudi Arabia with large construction companies that were forced to diversify their funding away from cheap loans from the Saudi banks.
And headed for Bin Laden Group, Saudi Arabia to local investors, as printed two versions of Islamic bonds (Sukuk) are short term while Saudi Oger has sought to raise two billion dollars from banks outside the Kingdom, a process that began in March 2011 did not reach the end yet.
If borrowers can not have access to private sources of funding were governments are forced to intervene. A source in the global bank: end up to become a local bank regulatory and restrictive limits if the increased pressure and I had to solve problems with government entities, then I expect some flexibility in the intervention.
Government intervention
In December, the Government of Abu Dhabi financial assistance valued at AED 16.8 billion (4.57 billion dollars) to Aldar to ease the liquidity crunch faced by the company. This was an important signal for the intentions of Abu Dhabi. They will not allow any defaults could harm the market of religion to public companies.
In Dubai, His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman of the Higher Committee for fiscal policy in Dubai last December that it would be no restructuring of the bonds maturing in the coming period, the companies associated with the government of the emirate, but the government may consider to refinance part of the debt and may be done through the issuance of new debt.
And the governments in the Gulf have enough financial strength to support the subsidiaries. Analysts polled by Reuters last December to record a surplus in the UAE for example, the budget increased by 6% of GDP in 2012 after it posted a 8% last year.Analysts believe that Bahrain is the weakest in the Gulf can count on additional assistance from Saudi Arabia if necessary.
Market confidence
However, the market confidence to avoid the Gulf crisis-overall that may arise from the need to refinance the debt is not absolute as it is trading exchanges to ensure the commitment for the five-year sovereign debt of Dubai at about 420 basis points.
This level was low, although the levels sharply exceeded the 650 points scored in the light of uncertainty about the debt crisis in Dubai in February 2010, but it is much higher than current levels of the powerful Gulf countries like Saudi Arabia, which amounts to about 135 basis points.
And government support for companies is not absolute. It is expected to go only to entities that are considered of strategic importance. Other companies may be forced to engage in restructuring talks as it did six companies are already big in Dubai.
The Government of Abu Dhabi in the previous statement that it is the International Petroleum Investment Company (IPIC) and Mubadala Development Company and tourism companies and investment strategy will be supported if necessary. She added later in the Abu Dhabi National Energy (Taqa) to the list.
And Dana Gas, the Sharjah-based company sees an example of a market that it can not necessarily rely on government support. Have resulted in uncertainty over the instruments of payments of one billion dollars in October 2012 to drop its shares and bonds in mid-January, before the company issued a statement stressing that it will meet its debt obligations, which stopped selling.
According to investment bank Akazhotics bonds which ranks the company’s recommendation that the sale or restructuring offer to buy shares from existing investors is a potential option for Dana Gas. Akazhotics attribute that to lack of liquidity available in the budget and unfavorable conditions for the collection of new funds.