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Region remains global project finance hotspot

25 October 2024

 

This package also includes: PPP activity eases back but remains strong

While the Middle East and North Africa (Mena) region has recently become the focus of global attentions for all the wrong reasons – amid surging conflict in the Levant – advisers continue to see the adjacent Gulf as a standout market for project finance.

“The Middle East market has been buoyant compared to the project finance market in many other parts of the world,” says Matthew Escritt, a partner at the UAE office of law firm Pinsent Masons, who has advised on large regional financings. 

“By far and away, the Middle East is the place to be if you want to do big-ticket project finance.”

Major deals such as the $6.1bn financing for Neom Green Hydrogen Company, which closed in 2023, affirm the region’s continued affinity with large and sometimes complex transactions that involve senior and mezzanine facilities and bring numerous financial institutions into the mix.

The use of project finance structures across a widening array of sectors – from hard and soft infrastructure, to newer asset classes such as green energy – suggests that the Middle East will remain a hotspot for funding activity.

Ratings agency S&P Global has forecast that alongside the energy sector, the region will see significant investments in transport and social infrastructure, as well as in digitalisation, with large outlays on connectivity and a doubling of data centre capacity as the region’s population continues to grow.

Regional reconfiguration

While the Mena region as a whole has seen an uptick in activity, the picture is not even.

“Activity in Saudi Arabia has seen something of a slowdown after it became clear that some of the kingdom’s more ambitious plans were being recalibrated,” says Escritt.

“Liquidity has become tighter and we’re finding that procurers are taking longer to announce their preferred bidder.”

Appetite among international banks has been weaker for some sectors, such as social infrastructure. 

Neom’s large green hydrogen financing of 2023 remains a standout rather than the norm, although local lenders appear ready to step into the breach when circumstances allow. For example, in April of this year, when Neom secured a $2.7bn revolving credit facility to cover short-term financing requirements, it was nine local banks that ended up providing the financing.  It was, according to Neom CEO Nadhim Al-Nasr, a “natural fit” within the company’s wider funding structure.

International banks’ interest remains fixed on energy sector and infrastructure projects. Outside of these, says Escritt, the project finance market is dominated by large local banks. This, he says, has contributed to a tighter liquidity environment as these financial institutions run up against exposure limits. “The key to unlocking that market’s undoubted potential is to create conditions that improve the appetite of foreign lenders for Saudi Arabian credits,” says Escritt.

International lenders’ comfort zones were once largely focused on massive financings such as the kingdom’s Sadara petrochemicals project, which in 2013 drew commitments of $12.5bn.  

“Frankly, the days of the Sadara blockbuster-type projects are over. But there’s still some substantial projects out there,” says John Dewar, a partner at international law firm Milbank, which specialises in energy and infrastructure financings.

Dewar points out that there are still a fair number of $2bn-$4bn projects in the region, but that it is more challenging to syndicate larger scales of debt. Even export credit agency (ECA) support is not a given in the Mena region.

“Even if they’ve got large export content in them, it’s still more difficult to get them mobilised into oil and gas financings, for example. The ECAs are pulling back from those types of deals,” says Dewar. “Petrochemicals is slightly easier, but nonetheless, over the next couple of years we will see fewer agency lenders involved in the petrochemicals sector than we have at the moment.”

The UAE – Abu Dhabi in particular – remains a bright spot in the region.  

 “Abu Dhabi has shown that it is very good at getting things done,” says Escritt, whose team helped bring the Khalifa University student accommodation public-private partnership project to financial close – another significant social infrastructure project in the UAE capital. 

“There’s a strong appetite among the major project finance players for Abu Dhabi risk – they like it. 

“You are also now seeing the larger local banks stepping into this space, with Abu Dhabi Commercial Bank and First Abu Dhabi Bank in particular showing appetite for these credits,” says Escritt.

The Qatari market has proved more sluggish, although the Al-Wakra and Wukair independent sewage treatment plant project – the country’s first – has seen progress this year with a $540m financing on a 75:25 debt-to-equity ratio basis, including a soft mini-perm structure.

Emergent energy markets

Energy has traditionally been a magnet for project financing in the Mena region and should support one of the emerging areas within that segment – carbon capture and storage (CCS), which is an area of focus for regional oil companies.

Saudi Aramco’s first phase of its Accelerated Carbon Capture and Sequestration project is expected to be the world’s largest CCS hub upon completion. Aramco aims to transport and capture 9 million tonnes a year of emissions by 2027 in its first phase.

Carbon-capture financing could prove an attractive opportunity for banks, swelling the liquidity that is already there for hydrogen schemes.

Lender appetite has increased for these new energy schemes. “[Saudi Arabia] had a large splash on solar power recently with Acwa Power financings, while Saudi Aramco will have relatively large financing requirements for its energy transition projects. The [kingdom is] now still very much focused on project finance transactions,” says Dewar.

With Oman pushing green hydrogen projects in Duqm and Dhofar, and Egypt backing an ambitious renewables programme under a structure that investors have found to be attractive and bankable, project financing should make more headway in the low-carbon space across the region. 

In renewables, there is more depth in the market and more lenders willing to participate, although as law firm AO Shearman has noted, there remains a deficiency in bankability and unpredictable development costs in green hydrogen schemes.

This piqued interest in non-fossil fuel project funding contrasts with the reduced appetite globally among banks for traditional hydrocarbons schemes. “If you’re looking at oil and gas financing, then it’s increasingly a struggle outside of some of the Chinese banks,” says Dewar. “That’s not to say that in the Middle East there aren’t still a number of local and regional banks that are happy to participate in the market.”

Government support will remain critical in getting centrepiece financings under way in areas such as green hydrogen. And, as AO Shearman notes, given the nature of the supply chain for green hydrogen projects, there is value in including ECA-supported debt in the financing mix. In particular, where Mena projects involve key equipment coming in from outside the region, ECAs have an important role to play in building confidence.

ECAs remain a mainstay in traditional Gulf downstream sectors such as petrochemicals. For example, South Korea’s Hyundai Engineering & Construction has tapped $1bn of project financing support from the Export-Import Bank of Korea for the Amiral petrochemicals project in Saudi Arabia. As the lone South Korean contractor deployed on the estimated $7bn scheme, it therefore enjoys sole access to this project financing facility.

Project sponsors will also be looking to capital market instruments, despite these losing favour in recent years as the global
interest-rate environment rendered proposed bond components in project financings less appealing to many.

With the US Federal Reserve in a gradual monetary easing cycle, however, the use of project-related bonds may begin to revive.

For example, Saudi Aramco has managed to complete some large gas pipeline financings using acquisition facilities that were refinanced in the bond and sukuk markets.

“As the interest-rate environment changes, that’s going to get more people thinking about bond refinancing activity. We’ll see a bit more in a year’s time, when interest rates have come down and investors readjust and start to look for more attractive yields,” says Dewar.

With a different interest-rate climate in place, and more lenders and project backers gaining experience in the new energy schemes that are emerging in the Gulf and the wider Mena region, the hope is that banks will be dipping back into the region with transactions that will maintain its status as the global project finance hotspot for a while longer.

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James Gavin

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    Ever 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 13 square kilometres (sq km). This is larger than the 4 sq km site that Hong Kong Disneyland occupies, but 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. 

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    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:

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    Kahramaa said the projects aim to “meet electrical network demand in light of the country's fast-growing …urban development”.

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    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.  

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    Photo credit: Kahramaa

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    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.

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  • Data centres churn investments

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    Global investment firm KKR appointed retired US Army general and former Central Intelligence Agency director David Petraeus as chairman of its Middle East operations in mid-April.

    The move is indicative of the region’s importance as a destination for the firm’s future investments, and capitalises on the strength of the relationships Petraeus has forged with Gulf country leaders during his years as a top US military strategist.

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    KKR’s prior investments in the region include a partnership with Abu Dhabi National Oil Company (Adnoc) in 2019 to create Adnoc Oil Pipelines, and acquiring a portfolio of commercial aircraft from Abu Dhabi’s Etihad Airways in 2020.

    The private equity firm’s investment in GDH, however, shows only part of the picture as far as the rapidly evolving data centre investment landscape is concerned.

    In March, Abu Dhabi-based critical infrastructure-focused sovereign investor ADQ and US-headquartered power developer Energy Capital Partners agreed to establish a 50:50 partnership to build new power generation and energy infrastructure that will serve the long-term needs of data centres and industrial clusters in the US and selected other international markets.

    The two firms plan to make total capital investments of more than $25bn across 25GW-worth of projects. The combined initial capital contribution from the partners is expected to amount to $5bn.

    That announcement came a day after UAE National Security Adviser and Deputy Ruler of Abu Dhabi, Sheikh Tahnoon Bin Zayed Al-Nahyan, met with US President Donald Trump at the White House. During the meeting, the UAE is understood to have committed to a 10-year, $1.4tn investment framework for the US.

    Tech funds

    In the past 24 months, Abu Dhabi and Riyadh in particular have set up funds, sometimes in partnership with global firms, to invest in AI and data centre infrastructure, both domestically and abroad.

    Abu Dhabi’s MGX aims to build $100bn in assets under management within a few years, along with US-headquartered and Blackrock-backed Global Infrastructure Partners and Microsoft, the fund's key partners. It is part of the US’ Stargate consortium, which aims to mobilise up to $500bn to build AI infrastructure in the US over the next four years.

    In Riyadh, a $100bn AI initiative known as Project Transcendence is expected to invest in data centres, technology startups and other related infrastructure for the development of AI.

    US-based Silver Lake announced in March 2025 that, together with MGX, it has become a minority shareholder in state-backed, Abu Dhabi-based Khazna Data Centres, one of the region’s largest data centre operators.

    In 2023, Saudi sovereign wealth vehicle the Public Investment Fund (PIF) partnered with US-based DigitalBridge to develop data centres in Saudi Arabia and across the GCC states.

    In early 2025, Saudi Arabia-based DataVolt – which is owned by Vision Invest, a major shareholder in Saudi utility developer Acwa Power and a public-private partnership advocate – signed a preliminary agreement to build a data centre in Neom, Saudi Arabia. The $5bn facility, with an initial phase of 300MW, is the first of many such schemes that DataVolt is planning.

    Not to be outdone, the founder of Dubai-based private real estate developer Damac pledged to invest $20bn in data centre projects in several US cities earlier this year.

    And there is more to the growing – if outsized – number of bidirectional data centre-focused investment flows than meets the eye.

    Given the global AI race and mounting competition, investment decisions regarding data centres are moving from a simple, commercial focus to account for complex geopolitical considerations, according to Jessica Obeid, a partner at Dubai-headquartered New Energy Consult.

    “As the US weaponises its technological advancements, decisions to invest in US-based data centres hedge against the risks of US export controls, positioning developers in proximity to suppliers, ensuring reliable access to components.

    “Yet, this access could become costlier, driven by trade tariff wars, heightened regulations and limited access to grid infrastructure,” Obeid says.

    She adds that the GCC is quickly positioning itself as a global digital hub, driven by cost-competitive energy, advanced infrastructure and strong government backing.

    “Proximity to reliable power supply at an affordable cost, and speed in licensing processes and grid connections, are increasingly becoming strategic factors in data centre deployment – and the GCC offers that.”

    Powering AI strategies

    Almost all of the GCC states have formulated AI strategies that aim to improve operational efficiencies, create jobs and support their energy transition and net-zero initiatives.

    As a result, analysts expect the region to register double-digit annual growth in data centre construction activities in the next few years.

    In a recent update, global consultancy PwC projected that the Middle East data centre capacity could triple from 1GW in 2025 to 3.3GW in five years’ time.

    According to data from regional projects tracker MEED Projects, as of April, an estimated $12bn-worth of data centre construction projects are in the planning stage, in addition to over $820m under bid and $7bn under construction.

    Li-Chen Sim, assistant professor of civil security at Abu Dhabi’s Khalifa University, says that AI investments are, on the one hand, “all part of a carefully conceived strategy to … diversify out of a hydrocarbons-driven economy, to create new revenue streams from overseas data centres, build new growth sectors, support business requirements and offer more knowledge-based jobs as opposed to traditional manufacturing from domestic investments”.

    On the other hand, AI investments also aim to future-proof the hydrocarbons sector, which Sim expects will continue to be a significant driver of growth, revenue and exports, even as the use of renewable power grows.

    However, the ability of Gulf states to execute their plans for leveraging AI to diversify economies and create jobs –and specifically to address youth unemployment – depends on two factors, according to Obeid.

    The first factor is the ability of countries to advance their AI goals from infrastructure to capital and partnerships. The second involves the speed with which they can build up adequate human capital and a skilled workforce.

    “We will have to see how governments align their educational curricula with the AI policies and electricity infrastructure development,” she says.

    Ecosystem investment

    AI and data centre investments go beyond the facilities that house thousands of advanced graphics processing units, miles of cables and many cooling systems. To run and execute applications – particularly AI inferencing tasks – data centre facilities require a substantial amount of energy. 

    Moreover, data centres in the Middle East and North Africa region face elevated environmental risks due to the high ambient temperatures, which increase energy demand for cooling, as well as water requirements.

    This presents both a challenge and an opportunity, according to Obeid. "The GCC has an opportunity to advance innovation in energy and cooling technologies. Liquid cooling is necessary for AI workloads, and small modular reactors will become central in these data centres.” 

    In January, Abu Dhabi’s Emirates Water & Electricity Company (Ewec) appeared to show the way with a plan to build a round-the-clock solar photovoltaic (PV) plant combined with a battery energy storage system (bess) facility.

    The 5.2GW solar PV and 19 gigawatt-hour bess plant is expected to deliver renewable power as baseload, and UAE President Sheikh Mohamed Bin Zayed Bin Sultan Al-Nahyan has said that the project will help power advancements in AI and emerging technologies, and support the delivery of the UAE National AI Strategy 2031 and 2050 Net Zero initiative.

    Sim agrees that renewables combined with battery storage is part of the answer when it comes to building sustainable data centres. “Globally, data centres consume about 1% of electricity, and this figure – together with carbon emissions by data centres – is expected to grow significantly.”

    He notes that Goldman Sachs Research forecasts that global power demand from data centres will increase 50% by 2027, and 165% by the end of the decade, compared to 2023.

    “The other part of the puzzle with regard to sustainability is water consumption by data centres, particularly those in the Gulf, where high temperatures necessitate even more cooling measures.

    “Singapore, for instance, has pioneered integrated water systems that recycle treated wastewater for reuse – and this circular water model could be an option for data centres in the Gulf, instead of using expensive desalinated water,” says Sim.

    As things stand, the GCC can play a key role in the advancement of these and other technologies, along with efficiency measures and the optimisation of server utilisation through AI applications such as digital twins, says Obeid.

    This is just as well, since the region appears to be on the cusp of a boom in inbound and outbound investments that will build data centre capacity abroad and closer to home.

    “We are at a pivotal moment for innovation, where the intersection of digital advancements and energy innovation could position the GCC as a global leader, shaping the future of sustainable digital infrastructure,” concludes Obeid.

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    Saudi gigaproject developer Diriyah Company has tendered a contract to build the new iconic museum in the DG2 area of the Diriyah project in Riyadh.

    MEED understands that the tender was issued in April, with the bid submission deadline in June.

    Diriyah completed the prequalification process for the project in February this year.

    Diriyah Company is expected to award more multibillion-dollar contracts this year. In April, MEED exclusively reported that the client had awarded an estimated SR4bn ($1.1bn) contract for a utilities relocation package for the King Salman University (KSU) project located in the second phase of the Diriyah Gate development (DG2).

    The contract was awarded to the joint venture of Beijing-headquartered China Railway Construction Corporation and China Railway Construction Group Central Plain Construction Company.

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    Diriyah gigaproject

    The Diriyah masterplan envisages the city as a cultural and lifestyle tourism destination. Located northwest of Riyadh’s city centre, it will cover 14 square kilometres and combine 300 years of history, culture and heritage with hospitality facilities.

    The company awarded several significant contracts last year, including three contracts worth over SR21bn ($5.5bn). These included an estimated $2bn contract awarded to a joint venture of El-Seif Engineering & Contracting and China State to build the North Cultural District.

    In late July, Diriyah also awarded a $2.1bn package to a joint venture of local contractor Albawani and Qatar’s Urbacon to construct assets in the Wadi Safar district of the gigaproject.

    In December, MEED reported that Diriyah Company had awarded an estimated SR5.8bn ($1.5bn) contract to local firm Nesma & Partners for its Jabal Al-Qurain Avenue cultural district, located in the northern district of the Diriyah Gate project.

    Once complete, Diriyah will have the capacity to accommodate 100,000 residents and visitors.

    MEED’s April 2025 report on Saudi Arabia includes:

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