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Project finance demand up
Issac John / 17 January 2013
DUBAI — With $159 billion worth of contracts to be awarded across the Middle East in 2013, project finance loans are set to rise almost 15 per cent this year, according to bankers.
Project finance in the region is expected to grow from about $35 billion in 2012 to about $40 billion this year because infrastructure demand is going to be significant, bankers said.
“Financing is a critical issue that must be addressed as the project sector continues to recover and grow,” said Edmund O’ Sullivan, chairman, Meed Events, which is organising the Qatar Projects 2013 conference, scheduled for February 17-20 in Doha.
The four-day event will feature a comprehensive review of contract financing opportunities and challenges in Qatar.
According to Ravi Suri, Standard Chartered’s Dubai-based head of project and export finance for the Middle East, Africa, South Asia and Europe, demand for projects finance for power and desalination will be huge.
“You will have some petrochemicals, you’ll have infrastructure, roads, solar, renewables will perhaps play a big role,” Suri told Bloomberg.
Industrial projects, such as the Emal Aluminium Smelter Complex in the UAE, are proposing bond issues to fund expansion, according to Meed. Others, such as the Shuweihat independent power and water plant in Abu Dhabi, are considering using bonds to refinance debts. Sukuk, or Islamic bond, is also under consideration, with Saudi Arabia’s Sadara Chemical said to be considering a riyal-dominated project sukuk.
With bigger contracts looming as Qatar enters the next critical phase of its preparations to host Fifa World Cup in 2022 and to bid for the Summer Olympics in 2020. project owners and contractors must explore other opportunities beyond traditional bank lending to ensure the realisation of the projects, Meed said.
Before the financial crisis that hit the world economy in 2008, government infrastructure projects in the GCC were financed mainly through syndicated loans led by foreign banks. At the height of the crisis, the availability of project finance dried up while at the same time propelling debt costs upwards.
Nowadays, with the Basel III accord and new banking regulations throughout the region, multi-currency loans came in vogue to permit local banks to lend in local currencies, with new and tighter caps introduced in recent years. In addition to major regional banks, the gap in project financing was filled by credit agencies and the bond markets, Meed said.
GCC countries are investing oil wealth in more than $1 trillion of projects, including schools and roads in Saudi Arabia and stadiums to host the 2022 soccer World Cup in Qatar. Among projects set to raise money in 2013 are Saudi Arabian Oil Co and Dow Chemical Co’s $20 billion Sadara Chemical Co’s joint venture and Abu Dhabi-based Emirates Aluminium’s $4.58 billion expansion.
“Some European banks cut back on project finance loans to the Middle East and Africa last year amid the eurozone debt crisis, a gap largely filled by regional banks and export credit agencies from Japan and South Korea,” Suri said.
Middle East and North Africa syndicated lending fell seven per cent in 2012 to $41 billion, according to data compiled by Bloomberg.
“Almost 80 per cent of the Middle East project finance pipeline this year will be denominated in foreign currencies because interest rates on dollar funds are lower than those on local currencies,” Suri said. — firstname.lastname@example.org
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