GIC promotes debt/equity mix for Gulf project financing

05 August 1994

Gulf Investment Corporation (GIC) is making a determined bid to pioneer project financing techniques in the GCC. The Kuwait-based institution is of structuring equity investments and lending for new projects in Saudi Arabia, Kuwait and Oman, and is set to take a more prominent lead management role in large-scale projects. GIC says that loans due to come to the market later in 1994 include a syndication to part-finance the Manah private power plant in Oman.

GIC can use its strong equity resources to take substantial holdings in companies. Bankers say GIC's ability to assist project development and mobilise local and international investors could help it secure more build-operate-transfer, offset and other project finance mandates.

The new operations will consolidate GIC's position as an innovative investor and lender in industrial projects in the GCC. Analysts expect more Gulf banks to participate in non-recourse lending, which is still relatively unusual in the Gulf.

'Generally, if you have a decent industrial project in the Gulf you have no real problems getting investment,' a banker in Kuwait says. 'Getting real project financing is much more difficult, because most Arab banks are relatively unsophisticated when it comes to participating in non-recourse financing,' he says.

GIC's participation in non-recourse loan and equity structures - which can offer higher margins than more conventional business - could encourage more Gulf banks to enter project financing operations and develop the market, the banker says.

Industrial projects, for which syndications or club deals could be arranged by the end of 1994, include the following:

Manah power station, Oman. GIC will participate in a syndicated loan, provisionally planned for October, to finance the RO 82 million ($213 million) private power plant. The loan will be led by GIC's wholly-owned Bahrain subsidiary Gulf International Bank, France's Banque Indosuez and the Netherlands' ABN AMRO Bank. Bankers also expect the Manah financing to contain an export credit agency component (see Oman).

Poultry breeding scheme, Oman. Cost of the scheme is put at $21 million, involving a mix of loans and equity.

Copper tubing plant, Saudi Arabia. . A mix of loans and equity is planned for the $45 million by GIC and its partners, which include the local Alireza Group and Al-Zamil Group, and Finland's Outokumpu. A 50:50 loans and equity mix is expected, to be channelled into a specially created joint venture (see Saudi Arabia).

Electrodes plant, Kuwait. Unit producing electrodes for use in aluminium smelters.

Pharmaceuticals joint venture, Kuwait. The partners are Kuwait Pharmaceutical Industries Company and Saudi Arabia's Health Care International Company.

GIC is owned by the six GCC nations. In 1993 it expanded its investment banking, financial services and capital markets activity and further growth in these sectors is forecast in 1994 (MEED 29:4:94).

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