Saudi Arabia’s national shipping company, Bahri, has signed for a 10 year loan worth SAR700mn (US$186.7mn) to partially finance the purchase of three very large crude carriers (VLCCs). The loan will cover 80% of the value of the ships.
The loan, provided by Alinma bank, will be repaid in semi-annual instalments beginning six months after the loan’s signing date. The final payment will consist of 30% of the final amount of the credit line.
Nick Vozianov, Director of Loan Syndications at ING said that despite low oil prices, there was still additional liquidity in the region’s domestic loan markets.
“Rising oil prices are only a temporary development, but there are sizeable cash balances across the Middle East, especially in Saudi Arabia,” noted Vozianov.
“The country is well positioned to sustain two to three years of low oil prices,” he continued, adding that although the importance of oil will decline, gas, a commodity which many countries in the Middle East have plenty reserves, will continue to be an important resource in the future.
The Alinma loan is the company’s second in less than a month. On April 8 Bahri signed a Sharia compliant murabaha loan facility with Riyadh Bank worth SAR1.425bn (US$380mn), the proceeds of which will be used to finance the construction of five VLCCs. This loan has a tenor of 10 years and 6 months, and includes a maximum two year grace period.
Vozianov noted that there is no explicit focus on the Sharia compliant loan markets in the Middle East, and that many are conventional.
Despite the fact that the company could have tapped the international markets, tenor is one of the key considerations that guided its decision to stay local.
“Local lenders tend to offer credit lines with longer durations,” said Vozianov, which suits Bahri’s two 10 year credit lines. Tenors in the region often range between 6 to 8 years, which usually come with a minimum interest rate of around 3% to 3.5%.
The shipping company would also have likely been unable to borrow from other lenders from different countries in the region. But in the local sphere the markets are more fragmented, with a country’s banks typically only lending to local entities.
