As financial markets begin to calm and the cost of borrowing dollars falls, there is a real chance that the market for dollar funding may reopen. It will be welcomed by corporate borrowers and their advisers.
After nearly a year of stagnation in the dollar market, those arranging bonds and syndicated loans for Middle East companies are sitting on a huge backlog of demand.
Some businesses desperate for funding over the past year have been able to access local currency markets. This has allowed some local companies to raise funding that more accurately reflects their cost base, but the majority would rather have dollars.
Given that most of their outgoings are in dollars, borrowing in dirhams has often left companies taking on a substantial currency risk.
Two things must occur to bring some normality back to the market. First, banks need to secure access to more dollar deposits from their corporate clients, which they can then lend to others. This will give them a cheaper source of dollar funding than they can obtain from the international interbank market.
Second, they must convince borrowers that the low prices they have been used to over the past few years are long gone.
Achieving the first will be difficult while the weak dollar puts potential savers off making deposits, but the second message is beginning to sink in. Deals in dirhams are now being done at the same margins that dollar deals were priced at six months ago, indicating that the disparity between the two currencies is coming to an end.
Businesses in the region need to remember that just because dollar markets are showing signs of reopening, there will not be a return to the days of cheap debt.
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