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Trade finance gains traction in MENA

Low revenues from depressed oil prices will drive trade finance and pre-export finance across the MENA region. This will be particularly prominent in the energy and natural resources sector due to the large sums required by companies operating in this space.

Oct 6, 2016 // 11:33AM

A number of Middle Eastern banks are turning to trade finance because of tight liquidity conditions resulting from low oil prices.

Nick Vozianov, director, syndicated finance at ING noted that there had been a rise in pre-export finance across the MENA region.

In November last year, Egypt’s EEHC received an export finance-backed loan for the construction of three combined cycle power plants in the country that will increase its power production by around 50%, and in June this year Petroleum Development Oman (PDO) received a US$4bn senior secured pre-export term loan facility – in which ING participated.

In addition, State-owned Qatari banks are looking to create a positive funding cycle within the local economy through trade finance.

Another banker speaking to Bonds & Loans noted that they are in talks with a number of clients over potential pre-export finance transactions that could be finalised either later this year or in 2017.

Outside of aviation in which trade finance is common, it appears that the majority of this form of financing will be limited to the energy space across MENA.

Trade finance has usually taken place in the energy and natural resources space across the region in the past, and has not been particularly prevalent in other sectors mainly because the region historically borrowed on an unsecured basis.

“Pre-export finance tends to be present in the energy and natural resources sectors across MENA because these sectors are generally more liquidity-hungry – and liquidity for borrowers in this space tends to expire sooner than for other borrowers coming to the market for smaller amounts on a less frequent basis,” Vozianov said.

Alongside increased demand for trade and pre-export finance facilities from MENA-based issuers, there is likely to be increased demand for participating in such transactions from lenders.

Both the Egyptian EEHC energy deal and PDO’s facilities were heavily oversubscribed by consortiums of banks, and in the case of the latter included 46 lenders from across the globe.

“We are likely to see increased participation in pre-export finance facilities from both international and local lenders in the MENA region concerning trade financing going forward,” noted Vozianov.

He added that by applying the pre-export finance format onto a deal arguably allows for a wider banking audience to take part in the facility – which is why pre-export finance came onto the scene in the MENA region in the first place.

The banker added that they were working on 3 ECA deals as well as the pre-export finance transactions – one of which was of significant size.

Vozianov noted that these forms of financing have the potential to increase liquidity across the region, making them ideal instruments for environments with pressured finances.

Middle East Energy Projects & Infrastructure

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