Traditional Sectors Dominate Financing: With Banks Now Lending Larger Amounts at Lower Pricing, the Region's Project Finance Market Is Performing Better Than a Year Ago. but Energy and Power Projects Still Account for the Lion's Share of Funding

Martin, Matthew, MEED Middle East Economic Digest

In December 2009, Abu Dhabi's Department of Transport received bids for the development of the Mafraq-Ghweifat highway. At the time, financial close for the project funding was targeted for 1 July 2010.

One year later, the project is no closer to reaching that milestone. Instead, it has been beset by delays and the scope of the project is currently under review to reduce the development cost.

The project promised to be a pathfinder scheme for the region--a public-private partnership (PPP) initiative that would open the door for a raft of PPPs as the Middle East project finance market underwent a shift from being dominated by hydrocarbons and power projects to social infrastructure schemes.

In reality, the highway will not be financed until late 2011 at the earliest, and Middle East project finance remains dominated by energy and power projects. Of the 12 projects financed in 2010, eight of them were in the power or oil and gas sectors. Three metals projects in the UAE also raised funding.

Improved pricing

This is not to say that 2010 has been a bad year for project finance. As banks' balance sheets have recovered, they have become more prepared to lend larger amounts at cheaper prices. In total, about $27bn of projects should be financed in 2010 by the time the year ends. This compares to just under $25bn of deals financed in 2009.

"This year has really shown that the project finance market is back in reasonable shape and is capable of funding big deals," says Liam O'Keefe, head of project finance syndications at France's Credit Agricole.

Most significant among the financings was the joint Saudi Aramco and France's Total project to develop the Jubail oil refinery. The $12.8bn project reached financial close on 22 June, nearly a year after the financing was first launched to the market.

Towards the end of the year, Saudi Arabian Mining Company (Maaden) and its US partner Alcoa completed the financing for the first phase of their $10.8bn aluminium project. Financial close, on 30 November, brought the year to a successful conclusion.

A clear indication that the …

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Publication information: Article title: Traditional Sectors Dominate Financing: With Banks Now Lending Larger Amounts at Lower Pricing, the Region's Project Finance Market Is Performing Better Than a Year Ago. but Energy and Power Projects Still Account for the Lion's Share of Funding. Contributors: Martin, Matthew - Author. Magazine title: MEED Middle East Economic Digest. Volume: 54. Issue: 50 Publication date: December 10, 2010. Page number: 34+. © 1999 MEED Middle East Economic Digest. All Rights Reserved. COPYRIGHT 2010 Gale Group.

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