JEDDAH — Syndicated lending by Saudi Arabian banks has more than doubled in 2012 as companies fund projects, data compiled by Bloomberg showed.
“Family-owned businesses or privately held businesses haven’t to a large extent embraced those kind of things like corporate governance and disclosure and transparency,” said Abdul Kadir Hussain, Mashreq Capital’s Dubai-based chief executive officer, said. “Right now, it’s still a bank-driven market.”
Syndicated lending has slowed overall in the Middle East and North Africa, falling 5 percent this year to $28.5 billion, taking the total below regional bond sales for the first time since 2009. Issuances of sukuk and non-Islamic notes jumped 58 percent to $36bn in the same period, data compiled by Bloomberg noted.
Private companies are testing out the bond market. Majid Al Futtaim Holding, a Dubai-based family business operating malls and hotels, raised $400 million in January of sukuk at a return, or coupon, of 5.85 percent. The company, which set up a $1 billion Islamic bond programme, secured credit ratings of BBB from Standard & Poor’s and Fitch Ratings, the second-lowest investment grade at both companies.
“Change is coming and MAF is a great example,” Hussain said. “MAF went through the trouble of getting a rating and issuing sukuk and hopefully that example will be followed by other companies through the region.”
The potential pool of corporate bonds is substantial. Between 75 percent and 90 percent of Middle Eastern companies are owned and run by families, according to the Dubai-based Tharawat Family Business Forum, and independent network of Arab family businesses. In Saudi Arabia, the largest Arab economy, four privately held companies raised a record SR5 billion ($1.3 billion) from Shariah-compliant bond sales this year, according to data compiled by Bloomberg.
“As the overall sentiment for GCC credit has improved and investors are hunting for higher yields, private companies will find it easier to access the public debt markets and we may see a modest increase of new paper,” Apostolos Bantis, a credit analyst at Commerzbank in London, said by email.
Still, the tide won’t turn in favor of private businesses quickly as massive infrastructure spending needs of governments dominate supply. Saudi Arabia’s aviation authority, which used proceeds from the January sale for an airport expansion in Jeddah, said in May it planned a second tranche of notes complying with Islam’s ban on interest for another airport in the capital, Riyadh.
“There are few private companies with the ability to access the public debt capital markets,” Bantis said. “The majority of GCC credits with outstanding public debt or with the capacity to easily access the public bond/sukuk markets is dominated by the quasi-sovereign issuers and sovereigns.”
Gulf governments, spending their oil wealth on $1 trillion of projects from airports to soccer stadiums, will fuel a second year of record Islamic bond sales in 2013 as private companies remain reliant on bank loans.
Sukuk issuance by governments and state-linked companies in the six-nation Gulf Cooperation Council made up more than 80 percent of the $20 billion of notes sold this year, data compiled by Bloomberg showed. That is about 10 percentage points more than in Malaysia, home to the biggest global sukuk market.
“This trend will continue into 2013, if not increase, because the GCC region is growing rapidly and needs more spending to cope with their investment plans,” Samer Mardini, vice president of fixed-income and Islamic finance products at Dubai-based Markets Ltd, said. “The GCC is booming, there are a lot of infrastructure projects here and there, and they need a lot of money.”
The world’s biggest sukuk sales of the year were two $4 billion issuances from Saudi Arabia’s aviation authority and Qatar, which is set to host the 2022 soccer World Cup.
Only a handful of private businesses have ventured to the sukuk market to finance their expansion as regional economies pick up. They have opted instead to pursue financing from banks, with credit growth to private businesses exceeded 15 percent in Saudi Arabia and Qatar. — SG/Agencies