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Region sees evolving project finance demand

27 October 2025

 

The GCC remains in the grip of an infrastructure supercycle that requires project sponsors to seek out the most efficient funding solutions. This places project finance firmly in the frame, with interest piqued by developers’ preference for financing models that match long-term concessions with long-term debt. 

Deal advisers note the buoyancy of the Gulf projects market. 

“There is a collective appreciation for international capital and international resources and skills that is creating healthy competition in the region, which has not been seen before. This is fuelling some of the project finance boom,” says Andrej Kormuth, head of law firm Bracewell’s Middle East projects practice.

Deferring costs

Non-recourse lending – in which lenders rely on a project’s cash flow – remains a popular method of deferring costs in the Middle East, and one that has grown in volume and size. The availability of long-term offtake agreements with creditworthy counterparties has helped to reinforce investor confidence.

“Gulf states have recognised the budgetary benefit of not having to pay for infrastructure up front or in short order, but rather deferring these costs over a period of time – allowing a bit more budgetary flexibility in relation to critical spending,” says Kormuth.

GCC governments have seen project financing deliver value over the long term, helping them as they map out their long-term economic transformation programmes.  

“The procurers have seen how well the project finance deals in the Gulf have been run. They have seen the benefit of having international skills come in that would not historically have been locally available, and of running these assets for the long term,” says Kormuth.

Shifting asset classes

While traditional sectors such as power continue to dominate – according to ratings agency S&P Global, utilities alone accounted for 75% of project finance loans over the past five years – new sectors have come to the fore that are suitable candidates for project finance, including battery storage. 

“Over the last 12-18 months, one of the new developments has been the introduction of the new asset class of battery storage projects in jurisdictions such as Abu Dhabi and Saudi Arabia,” says Oliver Irwin, head of project finance at Bracewell.

“These projects are being developed on a very large scale, which gives rise to new challenges from a financing perspective, in terms of considerations for things like split procurement and battery degradation, which are not necessarily features of wind and solar project financings.”

Alongside the almost 90GW of renewable energy that Saudi Arabia will install over the next five years, the kingdom is also planning 48 gigawatt-hours of storage battery capacity by 2030.

There has also been a significant refocusing on the mining sector and digital infrastructure in the region, according to Munib Hussain, a partner at Milbank LLP, a project finance specialist.

“Mining [is seeing increased interest] because of factors such as the energy transition, and the rush to try and secure the minerals that support the energy transition, and as another means of diversifying economies. There is a real drive in the GCC at the moment to try and build out the midstream processing infrastructure for those critical minerals.” 

These projects are proving highly adaptable for non-recourse lending structures, backed by the preferred model of a long-term contract with a single offtaker. 

Data centres are another area of growth where project finance is likely to make a mark in the GCC, though this may require a steeper learning curve for lenders.

“In the digital space, there are still some challenges to [closing] large-scale project financing,” says Hussain. “But we know there are hyperscalers that are expected to come in with slightly longer-term leases or MSAs [master service agreements] that can support a project financing.”

These may have tenors of around 10-15 years, which Hussain points out is not particularly common, but he says the hyperscalers “see the opportunity to have a foothold there – and so they may be committing for slightly longer tenors”.

While renewable energy and data centres present new avenues for project lending, advisers point out that the Gulf has a surfeit of conventional infrastructure projects that are in need of funding – gas-fired independent power projects, for example, have seen a revival, as have water desalination and water reservoir storage projects. 

Ancillary infrastructure around Saudi Arabia’s gigaprojects is also keeping lenders busy. Saudi Power Procurement Company plans to add about 7GW of combined-cycle gas turbine capacity annually over the next five years.    

“The energy sector is quite buoyant,” says Bracewell’s Kormuth. “Two years ago, it was almost entirely dominated by renewables. Now, we are seeing quite a significant shift towards conventional, gas-fired baseload power stations.”

International re-entry

In newer sectors such as battery storage, international banks have built up their experience levels and are looking to replicate that in the GCC. 

“A lot of the international banks that are supporting the new wave of battery storage projects in the region have experience of financing battery projects in Europe and elsewhere. 

“So, while it might be new for the region, it is not necessarily new for those banks,” says Bracewell’s Irwin.

The re-entry of international lenders has changed the pricing equation, too.  

“The international commercial banks have become even more competitive, coming into domestic GCC projects, often outpricing the regional banks, which was not the case for the last five years or so,” says Hussain.

Whereas regional banks used to be much more competitive than international banks, various liquidity constraints have meant that the international banks are now coming in at much tighter pricing than ever before. 

So, while recent years have witnessed much liquidity and risk appetite from the local and regional banks that have started to play a prominent role in the financing of major infrastructure and energy projects, Bracewell’s Irwin says that in the last 12 months, there has been “a resurgence of sorts from the traditional international banks, leading to Middle East project deals, in particular in Saudi renewables projects”.

New sectors have come to the fore that are suitable candidates for project finance, including battery storage

Financing structures

Refinancing has been a feature of GCC project financing arrangements for many years. The so-called soft mini-perm structure, which involves margin step-ups and cash sweeps that give an incentive to refinance debt over time, retains popularity among sponsors. 

“The primary and preferred method for project financings in the region is a soft mini-perm. It is a proven model that works very well for the region and continues to attract a deep pool of financiers that are willing to lend to the region’s large pipeline of energy and infrastructure projects,” says Irwin.

Export credit agency (ECA) and Islamic tranches remain prominent features of project loans, sometimes in combination. This was the case with UK Export Finance’s guaranteeing of a $700m Islamic Murabaha financing facility to finance the construction of the Six Flags Qiddiya City theme park in Saudi Arabia. 

“We continue to see that Islamic financing is a key tool for project sponsors. If you are looking to diversify your funding base, it is now very normal to have an Islamic finance tranche alongside a conventional tranche, as well as an ECA tranche,” notes Irwin.  

Capital market instruments are another innovation identified by Gulf deal advisers. Saudi Arabia’s Greensaif pipeline transaction with BlackRock and Saudi Aramco in 2024 was a pipeline monetisation deal that saw BlackRock take a 49% interest in Aramco’s gas pipelines in Saudi Arabia. 

“There was a $13.4bn acquisition/stapled financing associated with that, which needed to be refinanced within a certain period of time,” says Hussain.

BlackRock went to various funding sources, including the conventional bank market, the international bond market and the sukuk (Islamic bond) market.

“The bonds and sukuk issued in connection with Greensaif are project bonds, because underlying the payment of the coupon on both was the revenue from the underlying project contracts with Saudi Aramco. These issuances were some of the largest project bonds issued in the region in recent times,” says Hussain. 

The Gulf’s pull for project financiers shows no signs of petering out. Lenders have developed a taste for regional risk, and international banks are particularly keen to get back in the game. The mood music is positive. 

“We have seen that different types of banks get priced out of the market from time to time, but they invariably look to return to the market because Middle Eastern projects are generally well-structured financings with very robust revenue streams. That gives rise to a lot of enthusiasm to support these projects,” says Irwin. 

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James Gavin

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  • GCC banks prove resilient amid turmoil

    27 July 2026

     

    Gulf banks are proving adept at navigating the economic and geopolitical turbulence that comes with operating in the region. These skills have come to the fore this year, as regional lenders draw on stable funding profiles and ample capital and liquidity buffers that protect them from near-term credit risks. 

    GCC banks’ fundamentals have proved remarkably resilient to the Iran-related turmoil, assuming the intensity of the February-April stage of the military conflict does not resume.

    There have not been any significant outflows of external funding. While anecdotal evidence suggests some depositors briefly moved funds out of the region at the start of the war, ratings agency S&P Global notes that their return reflects confidence that the war will prove short-lived.

    Funding strength

    Metrics for the early part of the year revealed a robust picture. Domestic deposits held up strongly in the first quarter of 2026, total GCC domestic deposits rising by 16.9% in year-on-year terms, compensating for the decline in interbank funding. 

    State-linked deposits grew at a particularly rapid pace, led by the UAE and Kuwait, which offset decelerating private-sector deposit growth in those countries. 

    Domestic deposits accelerated in April, a pointer to GCC governments’ proactive stances in shielding their banking systems from undue stress. The inflow of public deposits accelerated quite significantly in this period, although that pace will likely subside as conditions gradually normalise. 

    Such deposits continue to underpin GCC banks’ wider performances. “Funding and liquidity is generally a strength for the region. Government deposits typically make up 20%-30% of the banking sector deposits. That is really important as these are sticky deposits,” says Redmond Ramsdale, head of Middle East ratings at Fitch Ratings.

    Funding and liquidity is generally a strength for the region

    Gulf states’ heavy reliance on public sector and government-related deposits has proved valuable in the current environment, anchoring banks’ funding profiles and helping reduce potential risks.

    Fund outflows have not materialised to any significant degree. “We had some anecdotal evidence of funds being withdrawn, but they returned in the following weeks,” says Ramsdale.

    Solid fundamentals

    GCC banks entered the conflict period in strong shape. According to S&P, domestic private sector credit growth in the region remained robust in the first quarter – the annualised growth rate was 8% at the end of March. 

    Core capital buffers are about 15%-16% – higher still for the top lenders – ensuring total loss-absorbing capacity stays below 9% of equity. Regulatory ratios exceed relevant thresholds, providing a significant buffer, according to ratings agency Moody’s.

    “If you look at the whole region, the proportion of the lending book that is non-performing, on a weighted average basis, sits around 2%,” says Badis Shubailat, a senior analyst at Moody’s. 

    “Against this solid level of asset quality, you have a cushion of provisions for expected losses that more than covers the existing stock of problem loans, which provides a strong first line of defence.”

    Then, as a second line of defence, are core capital buffers that remain high by global standards, with levels around 15%-16%. Put together, this explains why the banks are sitting on comfortable positions in terms of loss-absorption capacity.

    At the end of Q1 2025, the top 45 GCC banks reported an average Tier 1 capital ratio of 17%, with coverage ratios of 155.8%, according to S&P. 

    “Credit losses are at historical lows of 50 basis points (bps) for the region, and there are very good provisioning buffers – all of which helps to mitigate the negative consequences of the expected asset quality deterioration,” says Tatjana Lescova, director and lead analyst at S&P.

    According to Shubailat, the fact that the conflict impact on GCC banks has not been as pronounced as on other sectors reflects that over the past three years – and until right before the conflict started – the region as a whole, and its banking systems, had demonstrated remarkable resilience. In contrast, major advanced economies were struggling with inflationary pressures and subdued economic growth. 

    “This was visible in Saudi Arabia and the UAE, the two largest economic diversification engines in the region, which happen to also represent more than two-thirds of total banking system assets,” says Shubailat.

    Limited exposure

    Gulf banks have also been helped by the fact that those economic sectors most impacted by conflict – tourism, hospitality, energy – do not generally form a large part of their collective loans books. 

    “There will be weaker performance of borrowers in the most obvious affected sectors like infrastructure, tourism, logistics, transport and real estate, but tourism is actually a pretty small exposure for the banks – less than 3% of loan books,” says Ramsdale. “There might be a bit of pressure on small and medium-sized enterprises (SMEs), which are less able to cope with the pressures than the larger corporates, but again, for banks, SME lending is not very big.” 

    Banks’ exposure to the real estate and construction sectors is highest in Qatar – 31% of total credit at the end of March – while the exposure in Kuwait stands at 25%, with Saudi Arabia at 16% and Bahrain at 12%, notes S&P. UAE banks have been consistently reducing their exposure to these sectors, down to 13% at the end of March, compared to 21% at year-end 2020. 

    Moody’s Shubailat says that developers in the UAE sit on solid balance sheets and strong revenue backlogs, while banks’ exposure to the construction sector has declined. “So the quantum is lower, the credit quality of the exposure is better, and the banks are sitting on higher capital and provisioning buffers,” he notes.

    Gulf bankers are not resting on their laurels. They know that even if bad loans have been limited, they cannot forestall the possibility of problem exposures further down the road. 

    “Asset quality deterioration is a risk that we expect to materialise later in the year. This is because of weaker macro expectations, and negative impact on some of the corporate sectors, albeit varying across different GCC countries,” says Lescova.

    On average, for the region, S&P expects 20 bps of increases in credit losses for this year. When it comes to asset quality, the regulatory forbearance measures announced by three central banks will help alleviate the impact.

    Policy support

    Central bank moves have added another layer of support. Forbearance measures from the UAE, Kuwait and Qatar central banks have allowed additional headroom.

    For example, in mid-March, the Central Bank of the UAE launched a five-pillar resilience package that relaxed capital buffer stipulations, representing more than $272bn in support. 

    Kuwait eased liquidity requirements, raised maximum lending limits and released a portion of the capital conservation buffer to expand refinancing and credit quality absorption capacity. Qatar, meanwhile, has cut the reserve requirement from 4.5% to 3.5% for deposits.

    Forbearance measures from the UAE, Kuwait and Qatar central banks have allowed additional headroom

    Such measures were not a response to a banking crisis, says Ramsdale. “Some of the support packages that we have seen coming out of the central banks, in the UAE, Qatar and Kuwait, were preventative support measures,” he says.

    “They were designed to boost confidence and limit that pass through from temporary deposit volatility. It was not to do with acute banking stress.”

    Market confidence

    Larger banks are better positioned to cope with straitened economic times. They are generally more geographically diversified beyond their domestic markets, and international operations have historically been a growth driver for them. 

    “When there is increased market uncertainty, larger banks may benefit from a flight-to-quality movement, with deposits moved away from smaller banks. Based on Q1 results, only a few smaller banks have reported a contraction in the customer deposits,” says Lescova.

    The GCC’s largest banks, including Al-Rajhi Banking & Investment Corporation, Saudi National Bank, First Abu Dhabi Bank, Qatar National Bank, Abu Dhabi Commercial Bank and Emirates NBD, remain highly profitable, although they may not perform as strongly as they would have had the conflict not occurred.

    “We already expected some softening in profitability before the conflict, because of the normalisation of the cost of risk upwards from incredibly low levels over the last three years, [which] were driven by a very strong recovery performance from the banks,” says Shubailat. 

    “In turn, this current situation adds a layer of pressure to the normalising profitability story by increasing provisioning needs in light of the recent economic shocks,” he adds.  

    Confidence in GCC banks was evident from the outset of the conflict. In early April, Emirates NBD priced a $750m AT1 capital issuance, the first international debt capital markets transaction by a GCC issuer since late February.

    “The first ceasefire saw things like private placements start happening again, and that slowly translated into the opening up of public markets. 

    “Emirates NBD was one of the first banks to open up that market, and we are seeing the largest banks issuing again,” says Ramsdale.

    The operating environment for Saudi Arabia is ranked BBB+ – a strong position, all things considered. Ramsdale notes that Riyadh’s reprioritisation of large projects associated with Vision 2030 “means growth will probably be slightly slower in Saudi Arabia”, but adds: “That is actually a good thing, because growth was so strong it was beginning to pressure funding, liquidity and capitalisation. 

    “Taking off some of that pressure is a positive for banks.”

    Growth prospects

    Stronger earnings performances will allow banks to bankroll mergers and acquisitions (M&A), building on inorganic routes to growth. Within the past year, the National Bank of Bahrain and Bank of Bahrain & Kuwait (BBK) have agreed to explore a merger, while BBK has also absorbed HSBC’s retail banking business.

    Emirates NBD is reported to be looking to acquire HSBC’s business in Turkiye, a country where the Dubai bank already has a presence through its takeover of DenizBank in 2019. It also grew its stake in India’s RBL Bank this year to 60%. 

    “Certainly the big banks will remain opportunistic over M&A – where the value comes at the right price, then they are interested. And if the big international banks are going to pull out, they tend to have some of the best-quality assets, so you can understand why regional players might be interested in them,” says Ramsdale.

    Such moves should provide reassurance that, despite recent challenges, GCC banks are well placed to ride out the remainder of 2026 and resume the positive trajectory  that was evident before the Iran war shook the region. 

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    According to a source, the RFP was issued earlier in July and developers have since submitted a first round of clarification requests to SPPC as they prepare their bids. 

    Developers have until October to submit proposals, the source said.

    The six bess projects include:

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    • Al-Henakiyah bess ISP: 500MW (Medina)
    • Khulis bess ISP: 500MW (Mecca)
    • Sadawi bess ISP: 500MW (Eastern Province)
    • Ashyrah bess ISP: 500MW (Mecca)

    On 1 July, MEED reported that up to 27 firms had prequalified to participate in the second phase. SPPC previously received statements of qualification on 13 May.

    It is understood that Abu Dhabi National Energy Company (Masdar, UAE), Acwa (Saudi Arabia), EDF (France), Korea Electric Power Corporation (Kepco, South Korea), International Power (Engie, France) and Marubeni Corporation (Japan) are among the companies likely to make offers for the contracts.

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    Separately, SPPC has extended the deadline for developers bidding for four solar projects under round seven of the NREP, led and supervised by the Ministry of Energy.

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    Dubai Municipality received statements of qualification on 23 July from firms interested in delivering phase three of the Jebel Ali sewage treatment plant (STP) expansion project.

    Known as DS150/3, the project will be delivered under a public-private partnership (PPP) model on a design, build, finance, own, operate and transfer basis.

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    • Miahona (Saudi Arabia) 
    • Samsung E&A (South Korea)
    • Saur (France)
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    • Taqa Water Solutions (UAE)
    • Veolia (France)

    The municipality issued a request for qualifications notice in May with an intial bid submission deadline of 18 June. UK-headquartered Deloitte is acting as financial adviser, Aecom is the project's technical adviser and CMS is the legal adviser.

    Dubai Municipality said the project will also include additional land uses and community-focused amenities as part of broader sustainability and urban integration objectives.

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    On 9 July, firms submitted bids for an engineering, procurement and construction contract covering the expansion of the Jebel Ali STP phases one and two.

    Located on a 670-hectare site in Jebel Ali, the original wastewater facility has a treatment capacity of about 675,000 cm/d, following the completion of phase two in 2019, combining approximately 300,000 cm/d from phase one and 375,000 cm/d from phase two.

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    UK-headquartered KPMG and UAE-based Tribe Infrastructure are serving as financial advisers on the project.

    READ THE JULY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Stress test for Gulf aviation; Mixed performance as country outlooks diverge in the Levant; GCC tourism sector pivots from crisis to recovery mode.

    Distributed to senior decision-makers in the region and around the world, the July 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
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    Mark Dowdall