Although several large multibillion-dollar project finance deals have closed or are due to close imminently within the GCC, there remains a limited pool of banks willing to fund long-term projects in dollars.
During December, Kuwaits $1.4bn Al-Zour North project financing reached financial close, as did Saudi Arabias Rabigh II independent power project. A $5bn financing for Saudi Arabian Mining Company (Maaden) to support the development of the Waad al-Shamal phosphates city is also close to being officially completed. This deal features a tenor of 17 years.
But the cost of funding such long-tenored dollar-denominated deals remains prohibitively expensive for some lenders, particularly if the client has negotiated highly competitive pricing. The heightened costs banks face is partly due to the new Basel III regulations that ensure they put more capital aside for long-term loans.
Bankers will also be watching new efforts by the US Federal Reserve to taper or reduce its bond-buying programme to see what effect this will have on the cost and availability of dollars.
A combination of these factors means that large-scale project finance deals in the GCC typically rely on the same banks, such as Japanese financial institutions, some European banks and government-backed Korean or Japanese export credit agencies.
The liquid Saudi banking market also plays a key role in funding large projects in the kingdom by providing local currency tranches.
Looking to the forthcoming year, bankers expect 2014 to be a steady but not extraordinary year for project finance deals. But deal flow would be stronger and there would be more liquidity from a broader range of banks if the pricing on the deals better reflected the cost of funding long-term dollars.