Gulf projects still booming

Financial analysts and the media continue to lament that September 11th was "the day the world changed" against the backdrop of European and US recession. But as fears of a prolonged global downturn rise, oil-rich Gulf economies, while expecting a slowdown in growth in the coming year, are still seeing solid commitments from international banks. In the two months that followed the attacks, Qatar, Kuwait, the UAE, Oman and Saudi Arabia have all seen large-scale financing progress with only minimal delays. Gulf bankers continue to talk of "business as usual."
Taking flight. Immediately after the attacks, Gulf officials were keen to talk up the region. The head of the Saudi Arabian General Investment Agency, Prince Abdullah bin Faisal bin Turki Al-Saud, told the audience at an investment conference that financing delays in the immediate term were simply a result of more challenging logistics - changes to flight schedules and the like, which were preventing foreign investors from accessing the region. The economic fundamentals, he claimed, remained sound and were perfectly conducive to continued investment growth.
Two weeks after the attacks, Saudi Arabia's minister of finance, Ibrahim al-Assaf, noted that the kingdom had not witnessed any immediate negative economic impact, saying that the main factors that influence the growth of the Saudi economy and financial stability are domestic ones. Al-Assaf pointed out that the country's banks still enjoyed healthy liquidity and were in a strong position.
Bankers were telling the same tale. The managing director of Saudi American Bank, Mike Graffenried, said that his bank was optimistic. "All the signs we see tend to point to future growth," he said, adding that visits with his customers showed that "despite what is happening in the outside economy, their business is moving along - plans are not changing."
The region's banks continue to defy pessimistic projections elsewhere with many of the key players turning in a very solid performance for the first nine months of the year. The National Bank of Kuwait reported in October that its profits were up by five percent, while Saudi banks - with the exception of Al-Rajhi - showed across-the-board improvements. According to the National Commercial Bank, the nine listed Saudi Arabian banks have reported a 12 percent rise in profits for the first six months of 2001 with the sector expected to report another "good year" in 2001.
Against this backdrop, large-scale financings moved ahead, albeit somewhat more slowly than they might have. Qatar, in particular, with its massive wealth in natural gas and successful hosting of the latest World Trade Organization summit, seems barely perturbed by the doom and gloom. In mid-November, the Ras Laffan Electricity Company secured a loan from local and international banks for $567 million.
Local financiers say that this kind of sentiment is likely to prevail for some time given the number of large-scale projects planned for the near future. These include infrastructure projects in preparation for the 2006 hosting of the Asian Cup, plans for a new airport, the construction of the causeway that is to link the country to Bahrain, and other new residential and commercial building projects.
Kuwaiti sources are less upbeat. Kuwait's oil minister, Adel Khalid al-Sabeeh, following the recent OPEC meeting spoke gloomily of the prospect of oil falling to $10 per barrel, but domestically life goes on. The National Bank of Kuwait (NBK), Kuwait Finance House and Citibank recently finalized a $900 million refinancing agreement with Kuwait's Equate petrochemical project - signed, sealed and delivered in record time given the current tight rein on credit.
Similarly, while Oman LNG's ambitious quest to secure $1.3 billion in refinancing has faced some delays, it, too, is now moving ahead. The director general of planning and project evaluation at Oman's oil ministry, Ali Battashi, recently said that he expects the deal to be finalized by the end of the year with bankers suggesting that, with the strong approval the project recently received from ratings agencies, the deal should progress smoothly. And in Saudi Arabia the Jubail United Company has called on banks to propose finance for $1.2 billion.
Big deals. Abu Dhabi is also defying the skeptics and is pursuing its quest to raise $1.3 billion for its Shuweihat independent water and power project. The interest of banks in the project has been reinvigorated following a restructuring of the terms of the loan, and Abu Dhabi is hoping to finalize the deal by the end of the year. UAE officials are keen to emphasize that they will go ahead with a series of large-scale development projects despite the global recession and a potential short-term drop in oil prices.
Some bankers say that such confidence from local banks is to be expected since the region is still feeling the positive effects of higher oil prices. "A period of high oil prices has increased liquidity levels with governments paying off debt and deposit levels at banks rising," says one Riyadh-based source. "Saudi banks are seeing high levels of deposits and are actively looking for somewhere to invest."
In Kuwait, figures reported by NBK show that lending levels rose during the first nine months of 2001. In November, the bank reported that the period up until the end of September saw the largest increase in lending to residents in four years with lending to the private sector rising by 193 million Kuwaiti dinars ($630 million). According to Saudi Arabia's National Commercial Bank, lending in the kingdom in the first nine months of 2001 rose by 80 percent compared to the same period in 2000.
Regional banks are not affected by the issue of country risk that plagues international financiers fearful that lending to the Gulf is not as safe as it was prior to September 11th. "Gulf banks are based in the Gulf, so they have to lend in the Gulf," says the same source, adding the legal restrictions discourage lending outside domestic markets.
To some extent, international financiers have reason to be more optimistic about a region rich in oil even if there are prospects of a drop in oil prices in the coming months. "If you're working in oil and gas economies," one British banker said, "this is still something of a bullish market. We talk to our colleagues working in other areas and things are not looking rosy, but in the Gulf there is still a fairly solid pipeline of projects coming to market. These are still busy times for us."