Introduction: Pile them high, sell them cheap

24 March 2006
atar was among the top five in the world for project finance volumes in 2005 - not bad for a country with a population of less than 1 million. Four of the six GCC states made it into the top 20. Needless to say, it was a year of unprecedented financing activity in the Gulf.

MEED's annual survey of the GCC project finance sector shows deals worth almost $20,000 million were completed in 2005. The figure is about $5,000 million up on the year before - itself an active one (see table, page 54). Doha led the way, with borrowings in excess of $8,000 million. Oman and Saudi Arabia both produced volumes in the $3,000 million-4,000 million range, while thanks to the Dolphin Energy bridge, the UAE was also propelled into the global top table.

As the reasons for the burgeoning activity remain in place, the year ahead promises to be even more frenetic. Oil prices are widely expected to stay high throughout 2006. Continued increases in spending on infrastructure, industrial and hydrocarbons projects will keep the bankers busy. MEED conservatively estimates the project financing requirement over the coming year at more than $30,000 million. And with hundreds of billions of dollars worth of projects at an earlier stage of implementation, the region's position on the international financing map is set to grow ever more central.

Yet more mega-deals are due to come out of Doha in 2006. Ras Laffan Liquefied Natural Gas Company (RasGas), a veteran and innovative market player, will seek a further $5,400 million to complete the financing of liquefied natural gas (LNG) trains 3-7. A $4,000 million debt package for Qatargas 4, the joint venture of Qatar Petroleum (QP) and the Royal Dutch/Shell Group, is likely to come to market in the second or third quarters. And financial close on the Mesaieed A independent water and power project (IWPP), which will require debt of some $1,000 million, is due by the end of the year.

But the heart of this year's action will be Riyadh. A bewildering host of petrochemicals projects are in train and needing cash. Since late 2005 alone, debt packages have been launched for the Eastern Petrochemical Company (Sharq) expansion, the Rabigh Refining & Petrochemical Company (PetroRabigh) project, Sahara Petrochemical Company's Al-Waha polypropylene scheme, the Saudi International Petrochemical Company (Sipchem) acetyls complex and the propane dehydrogenation (PDH) plant planned by National Propylene Production Company (Alfasel). These borrowers alone required commercial finance in excess of $4,000 million. And many more are scheduled to tap the market by the end of 2006.

The other main source of activity in the kingdom will be the utilities sector, as Riyadh embarks on an ambitious expansion of its power and water generation capacity with the aid of the private sector. Both the Shuqaiq and Marafiq IWPPs are out to bid, while the next stage in the Water & Electricity Company (WEC) programme, at Ras al-Zour, is due to be tendered by year-end. WEC and developers alike will take heart from the debutant, the Shuaibah IWPP: in December, banks were signed up on a $2,000 million debt package - tightly priced given its novelty and attracting new banks to the kingdom.

Qatar and Saudi Arabia will dominate the market in the year to come. But a smattering of deals are due elsewhere in the GCC. Bankers are already digesting a rare project financing out of Kuwait, with the $2,900 million debt package for the Olefins II scheme out in the market. In the UAE, the biggest prospects on the horizon are the delayed phase 3 development at Abu Dhabi Polymers Company (Borouge) and the Fujairah IWPP. Activity in Oman will be slower than in 2005, but the Barka IWPP is out to tender and the sponsors of the Sohar olefins complex could still approach the bank market by the end of the year. In Bahrain, the developers awarded the Hidd IWPP in January are target

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