Gulf corporates look set to borrow nearly $5bn in loans in April, indicating that loan market activity is returning in the region after a slow first quarter in the wake of the Dubai World debt standstill request in November 2009.

April’s total loan activity should exceed the $4.25bn raised in the whole of the first quarter of 2010, and indicates that the market is returning.

Middle East loan Markets ($bn)
2009 Q2 12,775
2009 Q3 8,352
2009 Q4 8,304
2010 (year-to-date) 9,000
Source: Dealogic, MEED

So far though, total loan volumes for the first four months of the year is still behind that of 2009. In the first four months of 2009, around $11bn of loans were arranged, compared with just $9bn expected to be signed by the end of April 2010.

The loan market slowed down later in 2009 as bond issuance took over as the predominant source of capital raising in the region and debt problems emerged in corporates in Saudi Arabia and Kuwait. By the third and fourth quarters of the year, only around $8bn of deals where being completed.

Abu Dhabi’s Mubadala Development Company is now close to completing a $2.25bn loan deal, and Bahrain’s sovereign wealth fund Mumtalakat is also planning to sign a $500m loan, both of which should occur before 20 April.

Qatar Telecom (Qtel) is also planning to complete a $2bn loan before the end of April.

So far the loan market is dominated by government-owned companies. “We are seeing strong growth in the loan markets, but appetite is still limited to the right credit at the right price,” says Kashif Raza, head of syndications at Dubai Islamic Bank.

One syndications banker in the UAE adds that, “The issue we are facing now is that companies are trying to force down pricing, which may be happening too quickly for the banks and could hit future deals.”

Mubadala is paying banks a margin under 115 basis points above the London interbank offered rate (Libor). In March, Abu Dhabi-based International Petroleum Investment Company (Ipic) completed a $3.6bn loan that was priced at less than 150 basis points above Libor.

Banks are more comfortable with the pricing on the Mumtalakat loan, which is priced at around 225 to 250 basis points above Libor. Four banks are involved in the Mumtalakat deal, including the UK’s HSBC, Standard Chartered, the US’ JPMorgan, and Germany’s Deutsche Bank.

Once these deals are complete, Raza says more financings could be launched. “There are a lot of issuers sitting on the sidelines waiting to come back into the market,” adds Raza. With increasing progress being made on a solution to the Dubai World debt restructuring, is also helping improve sentiment to the Gulf region.

“Banks want to see a resolution of their Dubai exposure, and once that happens then they will become much more willing to add to their regional exposure,” says one regional banker.