Companies are increasingly calling on finance from the Far East as the global credit crunch drives borrowers to seek an ever more diverse pool of investors.
While Japanese and South Korean institutions have long-established links with the region, banking sources say that firms are beginning to court Taiwanese, Malaysian and Chinese lenders.
Developers are hoping that Far East finance houses will fill the gap left by European and US banks, which are becoming more selective in lending to Gulf projects.
New lenders including China Development Bank and China Exim Bank, the state’s export credit agency, are among those being targeted by financial advisers and syndications departments.
“We expect to see China Exim come in on a few deals in Saudi Arabia,” says one Saudi-based project financier. “Especially as power projects look to Chinese companies to supply turbines.”
As sponsors seek more contracting and technical expertise from companies in markets such as China, it is expected to give financial advisers the leverage to call on Chinese banks for funding.
One of the first deals that could include a significant involvement of Chinese institutions is the Ras al-Zour independent water and power project (IWPP) in Saudi Arabia. According to one source close to the project, China Development Bank and China Exim have been approached by financial advisers on the project.
However, some bankers say there are still difficulties. “We tried to get a large Taiwanese bank involved in the last project we worked on, but they would not lend to the Middle East without supporting Taiwanese contractors, or imports to Taiwan,” says a project finance adviser at one regional bank. “There is also a problem with how sophisticated some of these institutions are, and how well they understand the Middle East markets.”
However, if more contractors from the Far East do enter the GCC market, banks are likely to follow.
The increasing ties between Middle East banks and their Far East counterparts mean there is also more opportunity for cross-selling of deals. “We have increasing ties with institutions in the Far East and will be obliged to offer them participation in deals in sectors they are interested in,” says one Bahrain-based banker.
The question will then be whether the Far East banks can supply enough additional liquidity. Chinese banks are not immune to the impacts of the credit crunch, warns one project finance adviser.
The experience of South Korean and Japanese institutions could provide a model for others to follow. Export Import Bank of South Korea (Kexim) provided a $500m loan for the Saudi Kayan petrochemicals complex being developed by Saudi Basic Industries Corporation (Sabic), and another $400m for a gas-liquefaction plant in Yemen.
South Korea’s Woori contributed $57m for the Qatar Aluminium (Qatalum) project that was finalised last year.
Japanese export credit agency Japan Bank for International Co-operation (JBIC) has also become one of the biggest lenders to projects in the Middle East, making commitments of more than $5bn in 2007.
Table: Far East financing
|Kexim loan for the Saudi Kayan petrochemicals complex||$500m|
|Kexim loan for gas liquefaction plant in Yemen||$400m|
|Woori loan for the Qatar Aluminium (Qatalum) project||$57m|
|JBIC commitments to the Middle East in 2007||$5bn plus|