Banking key fact

The most significant project to reach financial close in 2010 was the $14bn Jubail refinery

Source: MEED

A strong recovery in the project finance market failed to materialise in 2010. In total, $33.7bn was raised for projects in the Middle East, with nearly all of that in the GCC.

This represents an improvement on the $24bn seen in 2009, but is still well off the market peak in 2008 when $40bn was raised. That $40bn was spread between 29 projects; in 2010, only 13 projects reached financial close.

Leading financial advisers 2010*
  Amount raised ($m) Number of deals closed Country of origin
Credit Agricole 16,100 2 France
Banque Saudi Fransi 14,000 1 Saudi Arabia
BNP Paribas 8,250 3 France
Standard Chartered 7,500 2 UK
Riyad Bank 7,500 2 Saudi Arabia
Societe Generale 3,700 1 France
Natixis 2,200 2 US
Citigroup 2,100 2 France
*=Joint mandates counted for each bank. Source: MEED

“There is still only limited appetite from banks for project finance and getting much above $30bn financed in a year is still tough,” says the head of project finance at an international bank.

The most significant project to reach financial close in 2010 was the Jubail refinery, a $14bn joint venture between Saudi Aramco and France’s Total. It was easily the largest project to secure funding during the year, and propelled its financial advisers, France’s Credit Agricole and local affiliate Banque Saudi Fransi, to the top of the league table for advisers. The Jubail deal accounted for nearly half the total raised in the year.

Tepid recovery for project finance

Bankers close to the deal say Jubail has proved the market is capable of financing mega-projects again. “Jubail shows that there really are a lot of banks out there ready to finance Middle East projects, which have strong economics and a good sponsor,” says a banker, who worked on the deal.

Middle East Project Finance market
($bn)
2007 First quarter 9,209
  Second quarter 7,440
  Third quarter 20,750
  Fourth quarter 14,513
2008 First quarter 4,303
  Second quarter 14,834
  Third quarter 9,475
  Fourth quarter 11,733
2009 First quarter 86
  Second quarter 5,279
  Third quarter 12,815
  Fourth quarter 5,949
2010 First quarter 109
  Second quarter 2,100
  Third quarter 9,380
  Fourth quarter 22,096
Source: MEED

Not everyone is as convinced. “Saudi Aramco managed to get a lot of banks together, but other sponsors did not find it as easy to get a lending group together,” says an international project finance banker.

The core banks acting in the project finance sector during 2010 remained a relatively small group. French banks dominated the table of leading advisers. Credit Agricole is joined by BNP Paribas, Societe Generale and Natixis. Other large lenders included international banks such as the UK’s HSBC and Standard Chartered; the US’ Citigroup; Germany’s BayernLB and KfW; and Japanese banks including Sumitomo Mitsui Banking Corporation and Bank of Tokyo Mitsubishi.

There is still only limited appetite from banks … and getting much above $30bn … is still tough

Head of project finance at international bank

In Saudi Arabia, the local banks were very active, but confined to their home market. Some of the larger Abu Dhabi banks supported UAE-sponsored projects, but were not otherwise active. This is in contrast to a few years ago, when banks looked at opportunities throughout the region.

Besides oil and gas schemes, industrial projects were a key part of the project finance market in 2010. More than $10bn was raised, mainly for metals schemes, including the first phase of the Saudi Arabian Mining Corporation (Maaden) aluminium project. Long-term funding was also finally put in place for Abu Dhabi’s Emirates Steel project, after extensions of a bridge loan secured during the financial crisis to help get the project started.

Middle East Project Financings 2010, by country
(percentage of $33.7bn)
Saudi Arabia 70
Egypt 12
UAE 9
Oman 6
Bahrain 3
Source: MEED

Several of the projects financed in 2010 are tying up the loose ends of the financial crisis. Last year also saw attempts to close the financing gap at the UAE’s Emirates Aluminium (Emal) project after a bond issue planned for 2008 never occurred because of the disruption to the capital markets.

The Jubail refinery deal was originally launched in 2009 and advisers had hoped to close much earlier than they eventually did. Similarly, the Maaden aluminium project had hit difficulties because of the financial crisis.

Beyond Saudi Arabia, the most active project finance market was Egypt, driven by the financial close of the $4bn Mostorod refinery, followed by the UAE and then Oman.

Upcoming project finance deals

After taking nearly six months for any significant project deals to reach financial close in 2010, the market is expected to get moving more quickly in 2011. Several deals are expected to reach financial close in the first quarter, including the Shuweihat 3 power project in Abu Dhabi and the Muharraq sewage scheme in Bahrain.

This will be followed by several new projects going out to banks to seek financing. Among these will be phase two of the Maaden aluminium project, the Qurayyah power scheme in Saudi Arabia, phase two of the Emal project, and the Mafraq-Ghweifat highway in Abu Dhabi.

Middle East Project Financings 2010, by sector
(percentage of $33.7bn)
Oil & gas 54.3
Industry 34
Power & water 11.7
Source: MEED

Other schemes are expected to come to the market soon, although they may not reach financial close in 2011. These include Kuwait and Dubai’s first public-private partnerships (PPP) projects.

Huge opportunities remain for banks to finance infrastructure in the region, but for many capacity to lend will return only slowly. Some banks are focusing on advisory work to give them a more constant source of income. This could prove to be a relief if there is not a more significant recovery in 2011.

“Part of last year’s deals came from people trying to book assets after not doing anything in 2009,” says a Dubai-based banker. “That factor may not be there in 2011”

The $40bn raised in 2008 looks likely to be a hard a feat to repeat.

MEED Middle East Project Finance 2011

28 February-2 March Ritz Carlton, Bahrain

This 14th annual conference will bring together major project sponsors, lenders, leading advisers and credit agencies. For more information, visit www.middleeastprojectfinance.com