Qatar, Abu Dhabi debt draws interest

Qatar Petroleum raised the Middle East's biggest syndicated loan this year as banks lend to state-backed projects after the region's political unrest and Europe's debt crisis reduced borrowing. The state-run energy company said this month it completed the financing of the Barzan Gas Project with a $7.2 billion syndicated loan. Qatar, holder of the world's third-largest natural gas reserves, is stepping up the pace of infrastructure developments as it prepares to host the 2022 soccer World Cup. Qatar and Abu Dhabi have secured loans even as syndicated lending in the Middle East and North Africa (Mena) fell 47 per cent, excluding most of the Barzan loan. Qatar and Abu Dhabi have the third-highest investment grade ratings at Standard & Poor's. The economy of Qatar, the region's second-biggest issuer of dollar bonds this year, will grow 19 per cent in 2011, the International Monetary Fund forecasts. "Everyone is desperate to lend to anyone who definitely is going to pay them back," Akber Khan, a director at Al Rayan Investment in the Qatari capital Doha, said by phone on December 23. "It's not so much about what is the right rate to lend at. The question is who can you lend to and sleep comfortably at night." Credit worthy Europe's debt crisis started in October 2009 with Greece's admission it had underestimated its budget deficit. Syndicated lending in the Middle East and North Africa dropped to $32.4 billion this year from $61.3 billion in 2010, data compiled by Bloomberg showed. It reached a record $109.6 billion in 2007. Middle East lenders, including National Bank of Egypt and Emirates NBD, accounted for five of this year's top 10 mandated banks in the region. That's up from three in the previous two years. France's BNP Paribas, ranked sixth last year, and Credit Agricole, ranked fourth in 2009, dropped off the list as Europe's debt crisis forced them to scale back their regional business. The $10.3 billion Barzan project is Qatar's most expensive energy project since Royal Dutch Shell announced the Pearl gas-to-liquids plant, now budgeted at $19 billion, in 2006. Qatar will fund the project, seven per cent owned by ExxonMobil Corp, with as much as 30 per cent equity, with banks and export credit agencies from Japan, Korea and Italy providing debt, Qatar Petroleum said in the December 13 statement. Interest in Barzan is "unsurprising if you look at the credit worthiness of the borrower and Qatar's credit default swaps," said Al Rayan's Khan. "It has been one of the better performing CDS globally in 2011." Five-year credit default swaps for the Gulf state have fallen nine basis points from this year's peak on October 4 to 127.4 on Monday, CMA data show. Qatar Petroleum will pay an interest rate of 2.19 percentage points over Libor for $3.34 billion in bank loans to help finance the Barzan natural-gas project, Finance Director Abdul Rahman Al Shaibi said on December 20. Better positioned Qatari borrowers are better positioned than their counterparts in the UAE, where banks pay about 30 per cent more to borrow funds on the interbank market. The UAE's three-month interbank lending rate was at about 1.52 per cent yesterday, compared with 1.17 per cent in Qatar, Bloomberg data show. "The cost of funding in the UAE is higher, so their lending has to be higher than that," said Mohammad Ali Yasin, chief investment officer at Capm Investment in Abu Dhabi. Emirates Aluminium Co's shareholders, Mubadala Development Co of Abu Dhabi and Dubai Aluminium, are likely to pay a higher interest rate for loans than the Barzan project, Yasin said by phone. "But banks are looking for opportunities to fund government projects, as they are not considered a risk, so such projects shouldn't have problems getting funding." Emirates Aluminium may seek to borrow two thirds of the funds needed for a $4.5 billion Abu Dhabi aluminum smelter expansion, two people with knowledge of the matter said on December 22. Export credit agencies and commercial banks will split funding for the smelter expansion, said the people, who declined to be identified because the transaction hasn't been finalised.