The Refinancing Landscape in Kuwait: Trends, Options, and Considerations

Introduction

Kuwait’s refinancing landscape has undergone significant changes since 2015, driven by legislative updates and the “bond phenomenon of 2019”. This period has seen record-low interest rates, resulting in a surge in refinancing activities. As debts from this era approach maturity, the trend is expected to persist into 2024, fuelled by the five-year tenor initiated during the 2019 debt financing boom.

Conventional Bilateral Term Loans

Conventional bilateral term loans typically involve a straightforward loan agreement between a borrower and a single lender. These agreements are often unsecured but may be guaranteed and priced based on the borrower’s creditworthiness. For larger financing needs, unsecured syndicated loans involving local and international banks generally follow the Loan Market Association Standard (LMA) format.

Islamic or Sharia-Compliant Loans

In Kuwait, Islamic or Sharia-compliant loans commonly employ Murabaha as the primary financing instrument.

Notable Transactions

Several notable transactions have taken place in recent times:

• EQUATE secured a bridge bilateral loan
• KIPCO issued the first Kuwaiti Dinar-denominated Sukuk by a corporate entity to prepay an existing senior unsecured facility
• Zain initiated the syndication of a USD1.2 billion Islamic loan to refinance a loan due in December 2023

Choosing Between Syndicated Bank Loans and Debt Securities

The choice between syndicated bank loans and debt securities involves distinct advantages and disadvantages.

Advantages of Syndicated Bank Loans:

• Simple documentation
• Cost-effective for straightforward transactions
• Flexibility in structuring

Disadvantages of Debt Securities:

• Higher initial costs due to complexity and numerous documents
• Involvement of multiple parties and advisers
• Higher transaction costs

Advantages of Debt Securities:

• Favourable interest or profit rates
• Tax-exempt returns
• Ability to establish a debt issuance programme for repeated drawdowns

Disadvantages of Syndicated Bank Loans:

• Complexity in structuring secured loans with collateral
• Increased administrative and co-ordination costs for syndicated loans
• Uncertainty regarding taxation of lending transactions for foreign financial institutions