China Petroleum & Chemical Corp (Sinopec) is leading fuel producers and traders borrowing more than US$500 million to build storage at the biggest oil port in the Persian Gulf region outside the Strait of Hormuz.
The Chinese company and a Singaporean partner raised a US$252 million loan last month for an oil-storage facility at Fujairah, the United Arab Emirates (UAE) port outside the Gulf's shipping chokepoint, said a person with knowledge of the financing.
The joint venture will pay less than the average of energy companies worldwide, according to data.
"Borrowers in industries with strong fundamentals like oil will not have problems raising money," said Amol Shitole, a credit analyst with SJS in Bangalore, India. "Syndicated loans and project financing are coming at cheaper cost" as lending rates fall, he said.
Fujairah's expansion as a fuel-storage site comes as credit costs decline in the UAE and the Gulf Co-operation Council's other five member nations. Borrowers in the region are paying the lowest interest rates since 2010, according to data for 209 GCC loans compiled by Bloomberg.
Storage operators may need to borrow more as they build new tanks in Fujairah.
Sinopec's venture with Concord Energy will pay about 2 percentage points, or 200 basis points, more than the London interbank offered rate for its 10-year loan, said the person with knowledge of the loan.
Energy companies worldwide, including traders, storage operators, explorers and utilities, paid an average margin of 310 basis points over benchmarks since January 1 last year.
Fujairah's location on the Gulf of Oman, about 160 kilometres south of the Strait of Hormuz, enhances its appeal to international traders and tank operators such as Vitol and Royal Vopak.
Iran last year threatened to close the waterway in retaliation for sanctions on its economy.
Investors are betting that demand for refined oil products in a region holding 48 per cent of the world's crude reserves will boost their profits from storing fuel in Fujairah. The former fishing village is now one of the largest ports for refuelling ships with so-called bunker fuel.
Gulf Petrochem, based in the UAE emirate of Sharjah, plans to expand a 412,000 cubic metre storage facility that it inaugurated last month, said Prerit Goel, a company director. The trader borrowed US$80 million of the US$135 million needed to build the tanks, with Abu Dhabi Islamic Bank leading the group arranging the seven-year syndicated loan, he said.
"For at least the next two to three years, trading growth in Fujairah will be on the upside because of demand in the region," said Aamir Habib of Credit Europe Bank. "The market for storage in Fujairah is supported by trading in bunker fuel and refined products."