Gulf energy producers issue record debt to fund expansion

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Gulf Arab energy companies issued record debt last year as producers opted to exploit lower borrowing costs to fund expansion plans. Oil and gas producers, pipeline operators and refiners in Kuwait, the UAE, Saudi Arabia, Oman, Bahrain and Qatar borrowed a record $28.7bn through bonds and syndicated loans in 2017, eclipsing the previous high set two years earlier, according to data compiled by Bloomberg. Those companies borrowed about $71.4bn in the past three years, more than twice the amount in the previous period.

The annual average of the JP Morgan Middle East Composite Index’s debt yield, an indication of borrowing rates in the region, declined 12 basis points to 4.58% in 2017, a two-year low. Global energy demand will jump 35% by 2040, from 2015, Opec estimates. Its secretary-general Mohammad Barkindo says oil investment is needed now to meet that growth and to make up for declining production at older fields.

State-owned companies in the Middle East have leaned on debt since 2014 as revenue fell with energy prices. Benchmark oil prices in the region tumbled as much as 60% in the period. “I think we will see more debt-raising by state energy companies in 2018,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. Even after record borrowing, the debt levels of Gulf energy producers lag behind that of publicly traded companies, he said.

Oil and gas producers in Saudi Arabia, Kuwait and the UAE plan to spend more than $500bn on energy projects over the next five to 10 years, officials from the countries have announced. Global energy investment was $1.7tn in 2016, according to the International Energy Agency. Abu Dhabi Crude Oil Pipeline, a unit of state-run Abu Dhabi National Oil Co, raised $3bn in a bond offering in October to finance projects. Kuwait National Petroleum Co borrowed $6.2bn in May for a refinery and clean fuels projects. Saudi Arabian Oil Co sold $3bn in Shariah-compliant bonds in April.

Adnoc’s fuel retailing unit took out a loan and revolving credit facility totalling $2.25bn in November before its initial public offering this month. Saudi Aramco, as the state energy producer is known, has a $2bn loan guarantee from the UK government in the run-up to its proposed IPO this year. Further debt may be issued this year to finance power plants in Saudi Arabia and petrochemicals in the region, Mills said.

Over the next decade, Saudi Aramco will invest $300bn to maintain its spare oil-production capacity and explore for natural gas, president and CEO Amin Nasser said in July. Adnoc plans to spend $109bn on refineries, petrochemical plants and gas exploration in the next five years, Abu Dhabi Crown Prince Mohamed bin Zayed al-Nahyan said in November on Twitter. And Kuwait Petroleum Corp has earmarked $112bn on oil production, refinery, petrochemical and natural gas facilities over the next five years, the company’s managing director of planning and finance, Wafaa al-Zaabi, said in September 2016.

Sources and Photo-credits: Bloomberg