Opportunity in adversity

Hussain Ghalib Al-Yafai, Head of Global Banking Standard Chartered Bank, Oman shares his views on the banks strategy, performance and focus areas. Mayank Singh reports
Standard Chartered Bank has gone through a restructuring process globally and in Oman. How has the bank’s performance been in the last couple of years?

We have been going through some structural changes in Oman where now our focus is primarily on, large corporates, commercial banking and SMEs, after exiting the retail market. We have been quite active especially as we continuously work on strengthening and deepening our relationships with our clients. We work diligently with our clients on finding opportunities even during challenging times. For example, people have been pessimistic about sectors such as oil and gas, contracting, automobiles and more, considering the macroeconomic environment. We at the bank actually look at challenges in these sectors as opportunities rather than challenges, and work with our clients accordingly. When the economy and companies are stressed you need to keep a close eye on how your portfolio performs and how credit metrics behave. If one is banking the right credit, transactions and relationships, in such situations there is an opportunity to secure multiple transactions. A few years ago there was hardly any borrowing as the government and government related entities (GREs) did not really do any borrowing, where very few cases only involved structured funding given that people mostly looked for trade finance. Given the challenging economic environment, and the need for the government to start borrowing we applauded the government’s initiative to create a borrowing curve especially that we have been in talks with them for three to four years about creating one. As a result the government now has bonds that are traded actively as five, seven, ten and longer tenure bonds and this gives others a benchmark to come out and borrow.

A lot of GREs or Oman Inc. that used to take equity cheques from the government, don’t have those equity cheques coming anymore and they have had to look for their own sources of funding, forcing them to reach out to the banks pursuing innovative ideas of funding be it in project finance, bonds, sukuks etc. and this is an achievement. People are talking about structured bonds, dividend recaps, securitisation, monetisation, heavily structured real estate funding, and we have begun to see a lot of that in the last one year.
Can you share details of some of the transactions that Standard Chartered Bank Oman has executed recently?
In 2017 alone we have been involved in $12bn worth funding for GREs and the corporate sector in Oman. For example we were involved in – Oman Oil Company’s $1.15bn revolving credit facility (RCF), where we were the financial advisers and the mandated lead arranger (MLA) for Salalah Methanol Company’s $727mn financing deal. We are also one of the MLA’s on Salalah LPG, which is a $640mn project. Currently, there is a lot happening, especially if oil stays at the levels where it is today in the foreseeable future, the deficit is going to linger and borrowing will continue, as it is going to help the economy grow, but it needs to be kept at sustainable levels, so that it does not become a stress on the economy. A few years ago we did three aircrafts sale and lease backs for Oman Air. We are going to see more of such deals which are structured, sharp and outside the box. Moreover, these will open different avenues of funding. The government too is looking in this direction. For example, the government has raised $3.5bn from Chinese lenders in a loan format recently. Such deals open up different avenues of liquidity for the government, so that they are not dependent on a single source of funding like pension funds or local banks. So now they have the local, international, sukuk and the bond market to tap into. We have been actively advising the government to look at different currencies including Asian currencies.
Is it getting progressively more difficult for Oman to raise finances in light of the recent rating cuts?
This has all been factored into the pricing, technically speaking that Oman is still an investment grade country, because you need two investment grade ratings to be in the indices and Oman is investment grade by Fitch and Moody’s. There is still ample room for well structured transactions which are not based on pure lending but are backed by solid receivables – be it receivables of oil or dividend cash flows from different entities. As long as it is well structured there will be investor appetite. But if it is clean funding then there could be a challenge as it is entirely dependent on the financial strength of a company to repay.
One concern being cited is that a lot of funding is being used for managing current expenses rather than infrastructure or development projects, is this a worry area?
The government has been candid about it, they see the debt to GDP going up to 50 per cent, so they still have room to borrow. The key factor in the equation is how fast the government can adjust to a budget of $50-60 per barrel of oil and start diversifying their sources of income by reducing subsidies, increasing taxes and generating fee income from ports, tourism etc.
How do you go about choosing whom to lend as a wrong decision in a challenging economic environment can leave the bank with substantial NPAs?
Most of our clients have been banking with us for the last 50 years. If we were to split our clients into a few categories it would be the international network names with whom we bank as a part of our broader international network. The other category includes government and its related entities. Another one is big family groups which have been in business for the last 50 years and we have banked them through various cycles. The SME segment is another one. All clients have to go through our rigorous on-boarding process and must comply with all policies – both internal and those required by the Central Bank and other local agencies.
 
Our performance from a corporate perspective hasn’t been affected as the two businesses are different. If anything, we have seen solid growth in our books. From a global perspective, as you can see that our profits have improved significantly. During the last three years a lot of corrections have taken place. We had Bill Winters joining as a new group Chief Executive, we have restructured the base and realigned our business. We are leaner and more efficient as an organization and the numbers speak for themselves. In Oman our corporate business has been growing at over 15 per cent year-on-year for the last three years and we see that continuing in the near future. We complement local banks rather than compete with them – as we continuously do transactions together, wherein we offer the client something that the local bank cannot offer and vice versa. The only difference is that we are on ground, so we are competing with all the banks that have no presence or franchise in Oman, but come in periodically to the Sultanate. Our strength lies with our strong and solid franchise that has been here for 50 years, in addition to our commitment to Oman and to our clients.