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
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
-
Oman’s Barka 5 IWP solar plant begins full operations1 May 2026
Spain’s GS Inima has begun permanent operations at the solar photovoltaic (PV) plant serving the Barka 5 independent water project (IWP) in Oman.
The solar facility is the third of its kind in Oman to power a large-scale desalination facility through a self-supply model.
In a statement, GS Inima said it will provide up to 50% of the desalination plant’s electricity needs during daytime operations, improving efficiency and reducing reliance on external power sources.
The PV plant has an installed capacity of 6.5MWp. It is designed to optimise energy consumption at the adjacent reverse osmosis desalination facility.
The project was developed by GS Inima in collaboration with local firm Nafath Renewable Energy as the engineering, procurement and construction (EPC) contractor. China-based OCA Global provided owner’s engineering services.
The Barka 5 IWP has a desalination capacity of approximately 100,000 cubic metres a day.
GS Inima won the contract to develop the Barka 5 IWP project in November 2020. As previously reported, financial close was reached in 2022, and construction of the facility was completed in 2024.
The self-supply solar PV plant is equipped with 10,504 bifacial modules supplied by China’s Jinko Solar. These are mounted on fixed structures provided by Mibet Energy.
Power is managed through 18 Sungrow inverters with a total capacity of 320kWac each, while electricity is fed into the desalination plant through an 11kV connection.
The integration of solar power supports the efficiency of the Barka 5 facility, which has an energy consumption rate of 2.7kWh per cubic metre.
https://image.digitalinsightresearch.in/uploads/NewsArticle/16645971/main.jpg -
Qiddiya receives high-speed rail PPP prequalifications1 May 2026
Register for MEED’s 14-day trial access
Saudi Arabia’s Royal Commission for Riyadh City, in collaboration with Qiddiya Investment Company (QIC) and the National Centre for Privatisation & PPP, received prequalification statements from firms on 30 April for the public-private partnership (PPP) package of the Qiddiya high-speed rail project in Riyadh.
This follows the submission of prequalification statements for the engineering, procurement, construction and financing (EPCF) package on 16 April, as reported by MEED.
The prequalification notice was issued on 19 January, and a project briefing session was held on 23 February at Qiddiya Entertainment City.
The Qiddiya high-speed rail project, also known as Q-Express, will connect King Salman International airport and the King Abdullah Financial District (KAFD) with Qiddiya City. The line will operate at speeds of up to 250 kilometres an hour, reaching Qiddiya in 30 minutes.
The line is expected to be developed in two phases. The first phase will connect Qiddiya with KAFD and King Khalid International airport.
The second phase will start from a development known as the North Pole and travel to the New Murabba development, King Salman Park, central Riyadh and Industrial City in the south of the city.
In November last year, MEED reported that more than 145 local and international companies had expressed interest in developing the project, including 68 contracting companies, 23 design and project management consultants, 16 investment firms, 12 rail operators, 10 rolling stock providers and 16 other services firms.
In November 2023, MEED reported that French consultant Egis had been appointed as the technical adviser for the project. UK-based consultancy Ernst & Young is acting as the transaction adviser, and Ashurst is the legal adviser.
Qiddiya is one of Saudi Arabia’s five official gigaprojects and covers a total area of 376 square kilometres (sq km), with 223 sq km of developed land.
https://image.digitalinsightresearch.in/uploads/NewsArticle/16641057/main.gif -
Bid deadline extensions hint at tighter project market1 May 2026
Commentary
Mark Dowdall
Power & water editorThere has been a steady run of bid deadline extensions across major power and water projects in recent weeks.
The latest is the Al-Dibdibah and Al-Shagaya solar independent power producer (IPP) plant in Kuwait, where the submission date has been moved again to 31 May, following an earlier shift from February to the end of April. Similarly, bidding for the first phase of the Al-Khairan IWPP has also been extended.
In Bahrain, bidding for the 1.2GW Sitra IWPP has been pushed back by another month to 17 May, having already been under main contract tender since last August.
Meanwhile, in Dubai, contractors have been given additional time to submit bids for both the Jebel Ali sewage treatment plant expansion and a dams rehabilitation project in Hatta.
Individually, these shifts are not unusual, and extensions are a routine part of the procurement cycle, especially with large, capital-intensive schemes.
However, amid regional tensions and increasingly complex risk profiles, stakeholders are having to weigh up how much they can absorb, whether that is performance guarantees, financing exposure or delivery risk.
For contractors and developers, this could mean looking more closely at supply chains, insurance costs and the potential for disruption. Lenders, too, are likely taking a more measured view on long-term exposure.
This caution can show up in the bid process. More internal approvals, more conservative pricing, and in some cases, perhaps a hesitation to commit altogether.
At the same time, strong pipelines across the GCC mean contractors are not short of work. Firms can afford to be selective, focusing on projects where risk and return are better aligned.
Clients, in turn, face a choice. Push ahead with more limited competition or extend and try to draw in stronger participation. Most appear to be opting for the latter.
https://image.digitalinsightresearch.in/uploads/NewsArticle/16640998/main.jpg -
Saudi Arabia launches $2bn Jawharat Al-Arous project1 May 2026
Saudi Arabia has launched Jawharat Al-Arous, an SR8bn ($2bn) private-sector-led residential development in north Jeddah.
The scheme covers 107 million square metres and comprises 18 residential neighbourhoods planned to accommodate more than 700,000 residents. It will provide more than 80,000 residential and commercial plots.
The masterplan also includes 41 government-backed infrastructure and service zones to support large-scale urban expansion.
The project was unveiled by Mecca Region Governor Khalid Al-Faisal and will be overseen by Saud Bin Mishaal Bin Abdulaziz.
According to a recent report by real estate firm Cavendish Maxwell, Jeddah’s residential stock stood at about 1.09 million units at the end of 2025, following the completion of around 4,000 units that year.
An expanding pipeline of about 18,000 units in 2026 and 22,000 units in 2027 is expected to bring total stock to around 1.14 million units by 2027, gradually adding supply without destabilising market equilibrium.
GlobalData expects the Saudi construction industry to grow by 3.6% in real terms in 2026, supported by increased foreign direct investment (FDI) and investment in the housing and manufacturing sectors.
The residential construction sector is forecast to grow by 3.8% in real terms in 2026 and to record an average annual growth rate of 4.7% between 2027 and 2030, supported by Saudi Vision 2030’s goal of increasing homeownership from 65.4% in 2024 to 70% by 2030, including through the delivery of 600,000 homes by 2030.
MEED’s April 2026 report on Saudi Arabia includes:
> COMMENT: Risk accelerates Saudi spending shift
> GVT &: ECONOMY: Riyadh navigates a changed landscape
> BANKING: Testing times for Saudi banks
> UPSTREAM: Offshore oil and gas projects to dominate Aramco capex in 2026
> DOWNSTREAM: Saudi downstream projects market enters lean period
> POWER: Wind power gathers pace in Saudi Arabia
> WATER: Sharakat plan signals next phase of Saudi water expansion
> CONSTRUCTION: Saudi construction enters a period of strategic readjustment
> TRANSPORT: Rail expansion powers Saudi Arabia’s infrastructure pushTo see previous issues of MEED Business Review, please click herehttps://image.digitalinsightresearch.in/uploads/NewsArticle/16640863/main.png -
Damage to US bases in region expected to cost more than $15bn1 May 2026
The $25bn estimate a Pentagon official gave US lawmakers on 29 April did not include the cost of repairing damage to US bases in the Middle East, and the real cost of the war is likely to be between $40bn and $50bn, according to CNN.
That would put the cost of repairing bases and replacing destroyed assets at between $15bn and $25bn.
Jules Hurst III, the Pentagon official serving as the agency’s comptroller, told the House Armed Services Committee that “most” of the $25bn he cited had been spent on munitions. Defence Secretary Pete Hegseth declined to say whether the figure included repairs to damaged US bases.
Iranian strikes across the Gulf in the early days of the war significantly damaged at least nine US military sites in 48 hours, hitting facilities in Bahrain, Kuwait, Iraq, the UAE and Qatar.
Six US servicemembers were killed in an attack on a command post in Kuwait, and 20 more were injured.
Three sources told CNN that the figure provided to the House Armed Services Committee did not include the cost of rebuilding US military installations and replacing destroyed assets.
One source said the true cost would likely be between $40bn and $50bn.
US contractors such as KBR and Fluor, as well as local firms, are likely to be among the leading contenders for contracts to repair and rebuild US bases in the region.
https://image.digitalinsightresearch.in/uploads/NewsArticle/16638663/main.gif