For banks seeking to get involved in large project finance deals this year, the Middle East and North Africa looks a good prospect.
With only tentative signs of a recovery in project finance since the global economic downturn, lenders will continue to be cautious. But the high level of government involvement in many of the region’s schemes means that financiers will increasingly judge the risks to be worth taking.
The Abu Dhabi government, for example, has taken a 51 per cent equity stake in the region’s first road public-private partnership – a $2.7bn project to build a 327-kilometre-long highway from Mafraq to Ghuweifat.
The emirate plans to replicate this model on other deals and bankers say they expect three or four more projects to be announced this year, all of which will have the government’s financial support. With such backing, Abu Dhabi’s infrastructure programme is likely to secure financing. Lenders want stable returns on tangible assets from strong clients, and Abu Dhabi’s projects have these credentials.
Further west, in the Maghreb, it is a similar tale. Insurers and export credit agency officials say they are eager to do more business here, but it is government-linked schemes which will get most of their attention.
As with Abu Dhabi, the North African projects backed by governments tend to be well structured and have a greater chance of being delivered on schedule.
The willingness of banks to support such projects through the rest of 2010 will be welcomed by authorities across the region, as they strive to complete a large number of university and power projects, road and rail schemes.
For other clients, it will be a less comfortable year. Riskier private projects will struggle to raise finance until the market fully recovers, which is unlikely to happen this year.