Long arms, deep pockets

24 March 2005
GCC project financiers who felt run off their feet in 2004 may soon be looking back on the year as a walk in the park. Deals with a total value in excess of $14,000 million were closed in 2004, close to double the roughly $8,000 million-worth concluded in 2003 (see table, page 26). But, as project activity reaches a frenetic pace, a conservative estimate of those set to come to market in 2005 or 2006 exceeds $40,000 million. The volume creates enormous opportunities for lenders to the region but also threatens serious strains on capacity.

The petrochemicals sector is set to stand out for deal flow this year, with a host of schemes across the region looking for finance. Saudi Arabia will lead the way by a comfortable margin, with projects under way totalling more than $15,000 million, including the $4,300 million Rabigh and $2,000 million YanSab schemes. The Qatar Chemical Company II (Q-Chem II) and Qatofin debt package is due out to banks imminently and the Qatar Fuel Additives Company II (Qafac II) financing could also kick off during 2005. The Sohar olefins and ethylene dichloride projects are taking shape in Oman, while in Kuwait, the preliminary information memorandum (PIM) is likely to be issued by the end of the second quarter for the Olefins II borrowing. Banks could even see the first petrochemicals deal out of Bahrain hit the market by the end of the year.

In terms of number of transactions, the power and water sector will be less busy than in 2004 - which saw independent water and power projects (IWPPs) and independent power projects (IPPs) financed in every GCC state but Kuwait. As in petrochemicals, the focus will be Saudi Arabia and the massive Shouaiba and Power & Water Utilities Company for Jubail & Yanbu (Marafiq) IWPP financings, to be followed by a string of similar projects. An Omani private power deal will be brought to market for the second year running, with the proposed Barka II greenfield IWPP, possibly including a brownfield acquisition, set to be tendered during the first half.

Having pulled off by common consent the deal of the year in the form of the $4,500 million Qatar Liquefied Gas Company II (Qatargas II) financing package, Qatar is again set to dominate oil and gas transactions, with the financing for train 6 at the Ras Laffan Liquefied Natural Gas Company (RasGas) complex due in place soon and a raft of liquefied natural gas (LNG) ship finance deals expected. A financial adviser has been appointed on the Qatargas 3 project, but the debt is unlikely to hit the market before 2006.

Government diversification plans and benign economic conditions are also accelerating downstream industrial projects, many of which have been on the table for a considerable period - notably aluminium projects in Oman and Qatar. Banks have already been sounded out on the Sohar Aluminium Company borrowing, expected to be worth more than $1,000 million. Also in the market is the $560 million debt packagefor the Qatar Steel Company expansion.

So even a selective look at the Gulf's largest industrial and infrastructure plans paints a clear picture. The volume of project finance required over the next year or two will be unprecedented and, without diversification of funding sources, unfeasible.

However, several positive trends have emerged during 2003/04, which suggest the market is shaping up in such a way as to be able to cope with the demands about to be placed on it. One is the increasing range of banks, both regional and international, joining mandated lead arranger (MLA) groups on GCC deals. Qatargas II is perhaps a misleading example - benefiting from the near-perfect economic conditions in Qatar and the hunger of international banks for LNG exposure. Even so, the deal stood out for the number of international banks with little or no lending experience in the region willing to come on board with $100 million tickets. Likewi

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