A steady upturn in Gulf demand for export credit is reflected in the signing of a first UK credit line for Emirates Bank International (EBI) and plans for new facilities guaranteed by the UK’s Export Credits Guarantee Department (ECGD) for Oman and Saudi Arabia. Increasing involvement by the ECGD and the Export-Import Bank of the US (Ex-Im Bank) indicates a growing interest in meeting this demand, bankers say.
‘Last year saw the Middle East as an extremely active area for ECGD,’ the UK agency’s chief executive, Brian Willott, said on 7 September. ‘In terms of future indicators some of the Gulf countries are considering credit whereas before they wanted cash credit cover.’
As yet, export credit agency (ECA) operations in the GCC remain limited. Several other ECAs are active, including Canada’s Export Development Corporation and the Netherlands’ NCM, which established lines for Kuwait in 1991-92, although these have been little used, analysts say.
But the need to finance contracts previously paid for on a cash basis, changing perceptions of risk by lenders and the effects of interest rate fluctuations are all factors encouraging the use of medium-term ECA financing.
‘As the number of projects needing financing in the region increases, export credit has one advantage, in that it locks the buyer into a fixed rate of interest for medium-term financing’, says a senior London-based banker. ‘This is a more attractive option when interest rates are rising over a sustained period for even the best borrowers.’
There has been a steady rise in the commercial interest reference rates and consensus rates set by the Organisation of Economic Co-operation & Development (OECD) since late 1993, and economists expect this trend to continue (see graph).
The new ECGD line for Dubai-based EBI, to back sales of UK goods and services worth £20 million ($30.8 million) to UAE buyers, is repayable over five years. It has been arranged by Banque Paribas (London – see UAE). ECGD has also approved cover for a £3 million ($4.6 million) credit line arranged by National Westminster Bank for Bank Muscat Al Ahli Al Omani (see Oman).
Western ECAs are looking to finance larger projects. Ex-Im Bank has allocated several billion dollars to finance the purchase of aircraft and telecommunications systems in Saudi Arabia. Saudi British Bank and Midland Bank are working on an ECGD facility for Saudi Consolidated Electric Company for the Central Region (Trade Finance, MEED Special Report 12:8:94).
The emergence of project financing operations will further stimulate ECA financing, bankers say. ‘The experience of Qatar shows that export financing will fall out of project financing,’ a London export credit specialist says.
Not all European banks are so sure. Paris bankers say that in the GCC use of credits backed by French ECA Coface is very limited. A FF 5,000 million ($943 million) Coface line for Kuwait, available to 10 leading French banks, has been little used. The main operation to date was the refinancing of six Airbus aircraft which had already been delivered.
‘For us the Gulf is not yet a Coface market, but we are watching the growing presence of ECGD there with interest,’ a Paris banker says.