Lenders eye prospects in new markets

11 March 2015

Project finance market remains apprehensive about impact of lower oil prices

There is currently a mixture of apprehension and excitement in the project finance market. Lenders are both simultaneously worried about the impact of low oil prices on the project pipeline in the Middle East and North Africa, particularly within the hydrocarbon industry, while at the same time eying deal prospects in new markets.

Yet the new opportunities emerging will require banks to have a relatively strong appetite for risk.

Egypt is re-emerging from years of instability to be an interesting market while the renewables sector in Jordan, Egypt and Dubai is offering potential deal prospects for banks. 

But renewables, such as solar power, is a relatively new sector in the region and lenders will be worried about the absence of a track record in the industry.

Egypt also presents a multitude of risks. Concerns about the country’s legal framework and political stability will persist. Currency risk will also be a concern as fluctuations in the Egyptian pound could affect how borrowers repay their debts.

What will be essential for lenders looking to move into these new but potentially risky markets will be the involvement of development banks, multilaterals and government-backed export credit agencies (ECAs).

Such entities will help set a benchmark for doing deals in these markets by providing funding and guarantees that in turn encourage commercial banks to lend to projects.

Entities such as the World Bank’s International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have already been highly active in Jordan and are expected to be heavily involved in Egypt.

Through close collaboration with these entities, commercial banks will be better equipped to enter new markets, even if traditional opportunities in other markets potentially dry up. 

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