Liquidity drives project finance appetite
27 October 2023
This report on project finance and PPP also includes: PPP activity rebounds in 2023
Activity in the Gulf region has triggered a boom in the project finance market, with Saudi Arabia leading the way on the back of schemes linked to its Vision 2030 strategy.
Deals are fanning out from power and water and infrastructure schemes into unexplored territory: hydrogen projects and ever-larger solar power plants have opened up opportunities for international and regional banks that are awash with liquidity and looking for long-term means to deploy it.
Deal advisers attest to the vibrancy of Saudi Arabia, the largest regional projects market with $1.2tn-worth of known work in the pipeline. The kingdom has seen the largest project financing this year, a facility worth at least $6bn arranged for the Neom green hydrogen project.
“Saudi Arabia is a market that really is firing on all cylinders,” says Rob Harker, a partner at law firm DLA Piper, which advised Neom Green Hydrogen Company in connection with its green hydrogen and ammonia project in Saudi Arabia.
“That demand is not limited to utility sector projects. In addition to the very large solar and wind projects – including a Saudi solar deal that is 1.1GW – we are also seeing a large volume of social infrastructure projects being procured across the GCC, including in education, healthcare, social accommodation and transport,” he adds.
“Bank debt – both regional and international – is still the principal source of financing for these projects. However, robustly structured projects should also be attractive, particularly on a refinancing, to a capital markets issuance.”
Robust liquidity support
There is increased liquidity in the regional banking market, notes John Dewar, partner in international law firm Milbank’s global project, energy and infrastructure practice, which advised the export credit agencies (ECAs) and commercial banks in connection with Project Lightning, Abu Dhabi National Oil Company’s offshore power transmission project.
“With the bullish medium-term oil price outlook, there is significant liquidity in the Saudi and UAE bank markets, with these banks looking to on-lend their petrodollar deposits on a longer-term basis.”
This still poses some challenges. Analysts note that despite the bountiful credit availability, things can change.
“There is still a lot of liquidity in the system in the GCC, but some have voiced concerns that liquidity in the banking market could dry up in the future if they have to compete with projects that are much larger in scale,” says Christiane Kuti, a director at Fitch Ratings.
“Overall liquidity in the market could get tight at some point, although we are not there at the moment.”
Even then, notes Kuti, a lower oil price could add impetus to the need to develop frameworks to make projects more bankable, and provide an opportunity for the capital market to play a bigger role.
Most of the larger deals are witnessing a heterodox mix of local and international banks participating. For example, a consortium of five local and international banks has agreed to provide $545m of financing for the Rabigh 4 independent water producer project in Saudi Arabia, with Standard Chartered Bank lining up alongside Bank of China and the local trio of Saudi National Bank, Riyad Bank and Saudi Investment Bank.
The Chinese bank presence is a pointer. “We have seen Chinese banks participating in project finance deals, and that is set to continue as they are not as constrained as some of the regional banks in terms of the tenor on which they can lend. Their ability to lend on a longer-term tenor is sometimes attractive for sponsors and developers,” a source tells MEED.
The flipside of this is that Chinese lenders are less knowledgeable about the market.
Global uncertainties
Despite the robust oil price climate, project financings across the Middle East and North Africa (Mena) region have had to cope with a choppy global interest rate environment, with inflationary pressures also impinging.
Higher interest rates have militated against the use of capital market instruments in some regional deals. For Abu Dhabi’s subsea transmission system deal, which reached financial close earlier this year, higher interest rates were responsible for adding $200m to the $3.8bn deal.
This has implications for other projects that are seeking refinancing on the capital market. In Saudi Arabia, BlackRock-led investors in Saudi Aramco’s gas pipeline network attempted early in 2023 to raise $4.5bn from a sale of bonds to refinance a multibillion-dollar loan. The 10-year mature sukuk (Islamic bond) tranche spread placed it about 120 basis points above where Aramco bonds maturing in October 2030 were trading, according to Reuters’ calculations.
Another consortium led by US-based energy infrastructure investment firm EIG Global Energy Partners had also looked to the bond markets to refinance.
“The EIG and BlackRock-led consortiums investing in Saudi Aramco’s oil and gas pipelines infrastructure have been looking to refinance more than $20bn of acquisition debt,” says Dewar.
“Both have been active in the bond market, but the interest rate environment has moved against bonds, so there has been an increasing focus by borrowers on accessing other longer-term liquidity sources, particularly from the highly liquid regional banks.”
Capital market instruments
For the moment, capital market instruments are largely confined to refinancing rather than greenfield projects. However, once some of these projects are financed, it could encourage others to lend on that basis.
“Once a project has been up and running, and it has got consistent revenue from the offtaker of the electricity or the water, and they are paying an index-linked revenue stream that is 100 per cent take or pay and insulated from the erosion of any inflationary pressures, that is very attractive for bondholders, pension funds and other institutions that want stable revenues,” says one industry insider.
Beyond the Gulf, Egypt has managed to attract project finance for its renewable energy schemes, with significant ECA support. In March 2023, a $690m non-recourse financing was arranged for the 500MW Gulf of Suez Wind 2 project in Egypt.
The renewable energy push has continued after Cairo’s hosting of the 2022 Conference of the Parties of the UN Framework Convention on Climate Change (Cop27). The drive has included the Amunet wind and Abydos solar projects closed by Amea Power, as well as the Gulf of Suez Wind 2 project sponsored by Engie, TTC-Eurus and Orascom.
“They are both important deals in a global context because they mark the first occasions on which the Japanese ECAs have co-financed with the International Finance Corporation and the European Bank for Reconstruction & Development, respectively, opening up important new financing opportunities in emerging markets,” says Dewar.
Support from ECAs is particularly valued in Egypt, given the economic challenges the country is facing.
A planned polypropylene complex due to be developed in Egypt’s Suez Canal Economic Zone has been put on hold, with the $1.7bn project developed by Red Sea Refining & Petrochemical Company having been affected by the depreciation of the Egyptian pound.
More regional financing
Another emerging theme will be for the larger Mena banks to play a bigger role in regional project financings.
The likes of First Abu Dhabi Bank have been active across GCC borders, including in Saudi Arabia. Given their healthy liquidity profiles, the biggest banks in the GCC are better positioned for longer-tenor project finance deals than ever before.
Not that it will be plain sailing. Structural impediments will still have to be overcome.
For example, most Saudi banks still need to get consent from the Saudi Arabian Monetary Agency (Sama) to participate in dollar loans. “That can constrain their ability to operate outside the kingdom,” says Dewar.
“There is a regulatory preference for them to make Saudi riyal loans rather than dollars. But because of the increase in dollar liquidity, there is much more availability in the Saudi market than there was a year ago.”
Project finance will remain a critical part of the funding mix in the Mena region. As Fitch Ratings notes, the significant growth needed to achieve the GCC’s investment requirements cannot be attained using traditional financing channels, such as on-balance-sheet funding by governments. Instead, there is a need to broaden the investor base, including through project financing.
The likelihood of a more benign global interest rate environment in 2024 should pave the way for a reassertion of capital market-based deals, making the next few months busy ones for banks and deal-makers across the Mena region.
Register for MEED's guest program now to access this article.
Exclusive from Meed
-
-
-
-
Firms bag $850m Qatar substation contracts8 May 2025
-
All of this is only 1% of what MEED.com has to offer
Subscribe now and unlock all the 153,671 articles on MEED.com
- All the latest news, data, and market intelligence across MENA at your fingerprints
- First-hand updates and inside information on projects, clients and competitors that matter to you
- 20 years' archive of information, data, and news for you to access at your convenience
- Strategize to succeed and minimise risks with timely analysis of current and future market trends
Related Articles
-
Dubai awards $272m Al-Maktoum airport runway deal
9 May 2025
Dubai Aviation Engineering Projects (DAEP) has awarded a AED1bn ($272m) deal to local firm Binladin Contracting Group to construct the second runway as part of the expansion of Dubai’s Al-Maktoum International airport.
MEED understands that the contract was finalised in Q1 of this year, and the construction works have started.
The airport, which will cover an area of 70 square kilometres south of Dubai, will have five parallel runways, five terminal buildings and 400 aircraft gates.
It will be five times the size of the existing Dubai International airport and have the world’s largest passenger handling capacity of 260 million passengers a year. For cargo, it will have the capacity to handle 12 million tonnes a year.
The construction works on the first phase of the project are expected to be completed by 2032.
Dubai approved the updated designs and timelines for its largest construction project in April last year.
The government of Dubai said that the plan is for all operations from Dubai International airport to be transferred to Al-Maktoum International airport within 10 years.
The government statement added that the project will create housing demand for 1 million people around the airport.
In September last year, MEED exclusively reported that a team comprising Austria’s Coop Himmelb(l)au and Lebanon’s Dar Al-Handasah had been confirmed as the lead master planning and design consultants on the expansion of Dubai’s Al-Maktoum International airport.
Project history
The expansion of Al-Maktoum International airport is a long-standing project. Also known as Dubai World Central (DWC), it was officially launched in 2014 with a different design from the one approved in April 2024. Back then, it involved building the biggest airport in the world by 2050, with the capacity to handle 255 million passengers a year.
An initial phase, due to be completed in 2030, involved increasing the airport’s capacity to 130 million passengers a year. The development was to cover an area of 56 square kilometres.
Progress on the project slipped as the region grappled with the impact of lower oil prices and Dubai focused on developing the Expo 2020 site. Tendering for work on the project then stalled with the onset of the Covid-19 pandemic in early 2020.
MEED’s May 2025 report on the UAE includes:
> COMMENT: UAE is poised to weather the storm
> GOVERNMENT & ECONOMY: UAE looks to economic longevity
> BANKING: UAE banks dig in for new era
> UPSTREAM: Adnoc in cruise control with oil and gas targets
> DOWNSTREAM: Abu Dhabi chemicals sector sees relentless growth
> POWER: AI accelerates UAE power generation projects sector
> CONSTRUCTION: Dubai construction continues to lead region
> TRANSPORT: UAE accelerates its $60bn transport push
> DATABANK: UAE growth prospects head northhttps://image.digitalinsightresearch.in/uploads/NewsArticle/13847301/main.jpg -
Siemens Energy signs preliminary 14GW Iraq pact
9 May 2025
Register for MEED’s 14-day trial access
Germany’s Siemens Energy and Iraq’s Electricity Ministry have signed a preliminary agreement to add 14GW of electricity generation capacity to Iraq’s grid.
The firms also signed two long-term service contracts for the Dibis and Al-Mussaib gas-fired power plants.
The contract for the Dibis power plant covers two generating units with a combined capacity of 340MW.
The five-year maintenance contract for the Al-Mussaib power station includes rehabilitating units with a capacity of 750MW and an additional 150MW, along with support for safe operations and performance optimisation.
The announcement was made following a meeting between Siemens Energy CEO Christian Bruch and Iraqi Prime Minister Mohammed Al-Sudani, local media reported.
The deals were signed a few weeks after US-headquartered GE Vernova signed a memorandum of understanding (MoU) with the Iraqi government to establish 24GW of combined-cycle gas turbine (CCGT) power plants in the country.
In late April, Iraq and Siemens Energy also announced breaking ground on a project to build a new CCGT power generation plant in Nasiriyah in Iraq’s southern Dhi Qar governorate.
The project is part of a $1.68bn development package that Al-Sudani recently launched.
In addition to the CCGT plant, the other projects include the Nasiriyah Integrated Medical City, a 700-bed hospital complex and infrastructure works in the Suq Al-Shuyukh district.
https://image.digitalinsightresearch.in/uploads/NewsArticle/13847219/main.jpg -
Abu Dhabi hopes bigger is better with Disney theme park
8 May 2025
Commentary
Colin Foreman
EditorEver since Aldar Properties first launched the Yas Island project with its Yas Marina Circuit for the Abu Dhabi Grand Prix in 2006, Abu Dhabi has been steadily adding theme parks to the island’s roster of attractions. First, there was the Ferrari theme park, then came a water park, a Warner Bros theme park and, most recently, SeaWorld.
The theory with theme park development is bigger is better.
A destination needs a series of parks to create a critical mass to attract visitors who can stay and enjoy multiple parks in one visit. The example always cited is Florida, which is home to many of the world’s largest theme parks, including Disney World.
The theory gained particular traction in the region when Dubai Parks and Resorts opened. The company, which was public until it was acquired by Meraas in 2021, reported significant losses as it struggled to attract enough visitors.
Although it opened with Legoland, Legoland Waterpark, Motiongate and Bollywood theme parks, insiders said that the problem with the development was that it did not have enough attractions to turn it into a successful theme park destination.
The financial performance of theme parks on Yas Island has not been publicly disclosed. While it is accepted that they have been more successful than their counterparts in Dubai, some say that the island still does not have the critical mass required to establish itself as a global destination for theme park visitors.
Miral has developed a series of theme parks and other entertainment-related attractions on Yas Island
Enter Disney
Disney changes that. It is the largest brand in the theme park space and will be a major attraction, but with limited information released on the project so far, it is difficult to fully gauge how significant the project will be.
The official release said that the project will be developed and operated by Abu Dhabi developer Miral, adding that Disney’s in-house design and engineering unit, Walt Disney Imagineering, will lead creative design and operational oversight to provide a world-class experience. It did not give any details on the ownership of the project.
In Hong Kong, for example, a company, Hong Kong International Theme Parks, was established as a joint venture, with the Government of Hong Kong holding 57% and The Walt Disney Company holding 43%.
In Japan, the structure is different. The Tokyo Disney Resort is owned and operated by Oriental Land, and the company pays licences and royalties to The Walt Disney Company.
In interviews following the launch announcement, Miral CEO Mohamed Abdalla Al-Zaabi confirmed the arrangement will be like Tokyo.
Waterfront location
The official release for the Abu Dhabi launch also said that the project is on Yas Island, which only has limited areas of land to develop. The release also said that the land is waterfront, and imagery in the launch video shows the Abu Dhabi skyline in the background, suggesting the land is on the northern waterfront of Yas Island.
There is a substantial tract of undeveloped land on the north shore of the island, which measures about 2 square kilometres (sq km). This is larger than the site that Hong Kong Disneyland occupies, and much smaller than Disney World in Florida, which spans an area of 111 sq km – nearly five times the size of the whole of Yas Island and nearly double the size of Abu Dhabi Island.
The hope is that Yas Island will become a leading global theme park destination and attract large numbers of visitors wanting a holiday with multiple theme park visits
Exclusivity clause
Another area of interest will be whether Abu Dhabi has an exclusivity agreement with Disney for the region. No exclusivity was mentioned at the launch, but in Hong Kong, the issue became contentious when Disney announced plans to build a park shortly after Disneyland Hong Kong opened. Local politicians criticised the Hong Kong government for not including an exclusivity clause in its deal with Disney.
Tourism gateway
Like Hong Kong, Abu Dhabi is a smaller economy sitting next to a larger regional player. With Saudi Arabia’s ambitious Vision 2030 strategy and its existing roster of theme park developments at Qiddiya, which includes a Six Flags, a water park and a Dragon Ball Z theme park, developers in Riyadh would likely be keen to have a Disney theme park, too.
For now, with Disney on board in Abu Dhabi, the hope is that Yas Island will become a leading global theme park destination and attract large numbers of visitors wanting a holiday with multiple theme park visits.
The potential is certainly there. During the project launch, Disney highlighted that the UAE is located within a four-hour flight of one-third of the world’s population, making it a significant gateway for tourism. It is also home to the largest global airline hub in the world, with 120 million passengers travelling through Abu Dhabi and Dubai each year.
If that potential is realised, then the bigger is better theory will be proved right. If the park’s performance disappoints, then it will suggest the region is not such a great destination for theme parks after all.
https://image.digitalinsightresearch.in/uploads/NewsArticle/13840555/main.gif -
Firms bag $850m Qatar substation contracts
8 May 2025
Four local and international firms have won contracts for the construction of seven high-voltage substations in Qatar.
State-backed Qatar General Electricity & Water Corporation (Kahramaa) signed the contracts, which have a total combined value of approximately QR3.1bn ($850m), with the following firms:
- Elsewedy Cables Qatar Company (local/Egypt)
- Voltage Engineering (local)
- Best/Betas Consortium (Turkey)
- Taihan Cable & Solution (South Korea)
Kahramaa said the projects aim to “meet electrical network demand in light of the country's fast-growing …urban development”.
The contracts include the provision and installation of underground cables and overhead lines extending around 212 kilometres to connect these substations.
Qatari companies won the largest share, equivalent to 58.4% or QR1.8bn, of the total contract value.
This reflects “our great confidence in the capabilities of the local private sector and its pivotal role in achieving our development vision and achieving Qatar National Vision 2030”, said Kahramaa president Abdulla Bin Ali Al-Theyab.
Qatar Minister of State for Energy Affairs, Saad Sherida Al-Kaabi, and senior executives from Kahramaa and the contracting firms signed the deals at a ceremony held in Doha.
Al-Kaabi said the projects will help “ensure our networks' continued and sustainable ability to accommodate the unprecedented growth of the power sector and meet the increasing electricity demand”.
Kahramaa said the contractors will undertake the construction of electrical substations and the connection of cables and overhead lines, as well as the development of some existing substations to increase their capacity.
Qatar has been ramping up its power generation capacity in recent years.
Qatar's Emir, Sheikh Tamim Bin Hamad Al-Thani, inaugurated the Ras Laffan and Mesaieed solar photovoltaic (PV) power plants on 28 April.
The two plants have a combined capacity of 875MW and will more than double Qatar’s solar energy production to 1,675MW.
In February, Qatar Electricity & Water Company (QEWC) and Kahramaa signed a power-purchase agreement for a 511MW peak electricity generation plant at Ras Abu Fontas, which will have a total cost of approximately QR1.6bn. The peak power plant is scheduled to become operational by January 2027.
A consortium led by South Korea's Doosan Enerbility, and that includes Beijing-headquartered PowerChina, will undertake the Ras Abu Fontas peak power plant's engineering, procurement and construction contract, with Germany's Siemens Energy supplying the plant's gas turbines.
Photo credit: Kahramaa
https://image.digitalinsightresearch.in/uploads/NewsArticle/13838850/main.jpg -
OQ to take interest in Oman renewable projects
8 May 2025
OQ Alternative Energy (OQAE), part of Oman’s state-backed energy group OQ, will be taking shares in Oman’s renewable energy independent power projects (IPP), starting with the Ibri 3 solar scheme.
“The direction seems to be for OQ Alternative Energy to own up to 25% shares in the upcoming solar and wind IPP projects in the sultanate,” says a source familiar with the plans.
Before this development, private developers and investors owned the total shares in such projects, similar to the existing structure in Saudi Arabia.
With this policy change, Oman will now be more closely aligned with the existing project structure in the UAE, where either Abu Dhabi National Energy Company (Taqa), Abu Dhabi Future Energy Company (Masdar) or the state utility, Dubai Electricity & Water Authority (Dewa), owns stakes in these projects.
However, OQAE’s planned 25% ownership share will be slightly lower than the typical 40% to 60% shares that Taqa, Masdar or Dewa owns in the UAE’s renewable energy IPP projects.
Currently, OQAE owns a 51% share in three renewable energy projects being developed in partnership with France’s TotalEnergies for the state-backed firm, Petroleum Development Oman (PDO).
The Riyah-1 and Riyah-2 wind power plants will be located in the Amin and West Nimr fields in southern Oman, while the North Solar project will be situated in northern Oman.
Each plant will have a capacity of 100MW, Total Energies announced in December.
PDO will purchase the electricity from the plants through long-term power-purchase agreements with the developer team, whose 49% shares are owned by TotalEnergies.
OQAE is also part of Hyport Coordination Company, a consortium comprising Belgium’s Deme Concessions and BP Oman. The consortium plans to develop a green hydrogen project in Duqm that can produce more than 50 tonnes a year of green hydrogen in its first phase by 2029.
https://image.digitalinsightresearch.in/uploads/NewsArticle/13838800/main.jpg