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Infrastructure finance forges growth path

25 February 2025

Commentary
Jennifer Aguinaldo
Energy & technology editor

Abu Dhabi-headquartered sovereign investor and holding group ADQ has completed its acquisition of a 49% stake in Australian infrastructure developer and investor Plenary Group, nearly 10 months after the acquisition was announced.

The transaction demonstrates ADQ's focus on critical infrastructure investments abroad and at home. 

The transaction is expected to strengthen Plenary’s balance sheet, “accelerating growth in key markets in Australia and New Zealand”.

The firm is expected to pursue projects such as the Hobart Stadium scheme and Brisbane 2032 Olympics infrastructure, as well as energy transmission, social and affordable housing and transport infrastructure projects.

Plenary and ADQ have also established a co-development and investment platform, Plenary Middle East, which will focus on public and social infrastructure opportunities in high-growth regions in the Middle East and Central Asia.

It is a strategic move in response to governments and state entities in the Middle East region finally warming up to public-private partnership (PPP) projects, after many false starts in the past, regardless of the state of oil and gas prices.

Another Australian infrastructure investor, Capella, is also considering expanding its operations in the Middle East region, following its acquisition by Japan’s Sojitz.

In Saudi Arabia, the National Infrastructure Fund (Infra) and US-headquartered Macquarie Asset Management signed a memorandum of understanding in February 2024 to increase institutional and foreign direct investments.

This development followed the approval of the kingdom’s National Infrastructure Fund Law. Infra is expected to play a key role in reinforcing the objectives of Vision 2030, including increasing the private sector’s contribution to GDP to 65%.

These acquisitions and partnerships set the tone for a brownfield market, notes a senior executive with an international infrastructure investor that has offices in Dubai.

Unlike developers, funds are generally motivated to exit or sell down after construction, so more brownfield opportunities will emerge, the source predicts.

Brownfield returns will be slightly lower than those for greenfield projects, so governments need to ensure that there are enough developers to participate in the brownfield market.

This now seems to be a major policy focus in some Middle East jurisdictions. 

Dan Taylor, senior adviser at Infra, says that in Saudi Arabia there is no shortage of local capital or international funds, and that the organisation is looking to be involved in "designing project structures that are favourable".

“It’s far more than a question of capital. We need to ensure these projects are marketable to attract global investors,” Taylor says.

The more the merrier

Rapid population growth, a focus on diversifying economies away from fossil fuels, and the need to create jobs and boost the private sector's contribution to the overall economy, have incentivised the region's sovereign wealth funds to create infrastructure funds or build alliances with developers.

Broadening the PPP scope beyond the power and water sectors, where the model has proved highly successful, has been a long time coming in the region, where the states have dominated infrastructure spending in terms of roads, airports, healthcare, schools, oil and gas pipelines and other minicipal services.

In the GCC states in particular, PPPs have always been perceived as the more expensive route compared to conventional procurement methods like engineering, procurement and construction (EPC).

Complicated and long-winded negotiations over project structure and financing have also put off some clients, especially in jurisdictions where rapid project implementation is the norm, and where favourable commodity prices create balance sheets that can withstand major capital spending.

However, the scale of projects being planned in line with the long-term economic visions of the leadership in many countries – along with decarbonisation targets that have 2030 and 2050 deadlines – and the limited capacity for executing those projects using the conventional procurement method, reinforce policies to boost long-term private sector participation.

For example, Saudi Arabia’s gigaprojects are using PPPs for some of their infrastructure projects, and they will be contending with 200 other infrastructure schemes – from court houses, airports and schools to water transmission projects – that are being planned by various ministries through the kingdom’s National Centre for Privatisation & PPP.

Abu Dhabi and Oman also have significant social infrastructure PPP pipelines, although their implementation rates vary considerably.

Dubai Municipality, following its successful waste-to-energy PPP project, is embarking on a $22bn project to build strategic sewerage tunnels that will match the emirate's growth projections for several generations.  

While financing such civil works-dominated construction projects may have been inconceivable for even the most comprehensive syndicates of banks a few years ago, lenders say that it is not an impossible task, and Dubai may yet succeed in orchestrating what could be one of the world's largest phased PPP undertakings.

Photo credit: Pixabay (for illustrative purposes only)

 

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Trump unleashes tech opportunities; Doha achieves diplomatic prowess and economic resilience; GCC water developers eye uptick in award activity in 2025.

Published on 1 February 2025 and distributed to senior decision-makers in the region and around the world, the February MEED Business Review includes:

> WATER & WASTEWATER: Water projects require innovation
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