Gulf firms set to raise more funds

Dubai: Corporate fund-raising activity in the Gulf countries is gaining momentum with more companies expected to borrow, sell bonds and shares in the next 12 months, according to economists and market analysts.

Despite the tough liquidity conditions in the international market, the region is expected to witness significant growth in corporate borrowings, bond issues and initial public offerings (IPOs).

"We are observing a gradual increase in long-term financing activities and a shift towards local currency-denominated sukuk. In sharp contrast to dire - yet recently easing - global financing conditions, the short-lived blip in financing activities in the GCC during late 2007 and early 2008 is gradually coming to an end and companies are gearing up to finance expansion plans amid low interest rates and tight credit spreads," said Dr. Ala'a Al Yousuf, chief economist, and Hany Genena, senior economist, at Gulf Finance House in a recent report.

There are also growing signs that more regional firms are gearing up to raise capital through IPOs. According to Ernst & Young, the burgeoning IPO pipeline shows few residual effects from the regional stock market crash in 2006.

In the first quarter of 2008 the regional IPO markets were off to a strong start, with 13 regional firms raising $3.8 billion. In the second quarter, 13 regional firms raised $ 4.72 billion. "There were 52 IPOs during 2007 and in the first half of 2008 there have been 26. The total capital raised in the first half of 2008 amounted to $8.69 billion compared to $4.83 billion from 33 IPOs during the same period last year," said Azhar Zafar, head of mergers & acquisitions, Ernst & Young Middle East.

According to Gulf Fin-ance House, a growing portion of equity and debt issuance is geared to fin-ance cross-border acquisitions. Analysts predict that the GCC is heading towards another lending boom. In contrast to the lending boom of 2003-2006, the upcoming boom will be mainly driven by the growth in corporate rather than personal loans.

According to analysts, the shift in the loan portfolio of banks to commercial loans will have two main implications. First, corporate loans in GCC are generally riskier than personal loans, the latter being backed mostly by salary assignments.

Second, despite higher risk, corporate loans are typically contracted at tight spreads above the benchmark interbank rate owing to competition among banks and pricing power of mega corporations.