Dubai to tap diverse funding sources to support Expo-led boom

29 January 2014

Dubai’s infrastructure projects to use bonds and Islamic finance structures

A range of financing tools from Islamic finance, bonds and project finance will be used to fund the ever-increasing pipeline of infrastructure projects in Dubai.

The emirate’s successful bid to host the Expo 2020 will kick-start an increase in infrastructure spending, with Dubai spending billions of dollars on new hotels, housing developments, and rail and road networks in the coming years.

While a lot of the funding will be provided by the government, the authorities will also need to turn to other sources of financing.

The commercial banks will provide much of the financing, says Walter van den Broeck, finance director, Mena, at engineering consultancy CH2M Hill based in Dubai.

“Commercial banks’ appetite for funding projects in Dubai has increased because they have reduced their risk exposure in personal lending, which means they have more leverage today,” Van den Broeck told MEED on the sidelines of the Destination Dubai 2020 conference. “I also believe that, following Dubai’s debt reduction and some of its recent refinancing, will make them more comfortable in funding government-led projects such as Expo 2020.”

He has no doubt there will be enough lending capacity in the market to support Dubai’s Expo ambitions.

“Funding will be found and made available. When a government embarks on a project like Expo 2020, what is required will be done,” he says.

The scale of the projects will mean a wider range of financing products will be tapped, including the use of sharia-compliant financing.

“While I believe that Islamic financing will play an increasing role in funding the development of major events, such as Expo 2020 (because Islamic financing has gained momentum on international capital markets and is closely aligned with local culture), I expect the majority of funding still to come from normal financing structures, such as bank lending, project financing and tapping the bond market,” says Van den Broeck.

Foreign banks and investors will also play a key role in supporting the Expo-led infrastructure boom.

Also speaking at MEED’s Destination Dubai event, Jeffrey Singer, CEO at the Dubai International Financial Centre (DIFC) told delegates: “[Securing international investors] is essential to ensure these schemes get funded. If we rely solely on the region, it might be a little bit difficult.”

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