Project finance dominated by foreign lenders
- Qatari banks focus on contractor finance rather than project finance
- Long terms of project finance discourage local lenders
Qatari banks are focusing on contractor finance and leaving project finance to international players as the economy continues to grow thanks to infrastructure investment.
There are $276.5bn-worth of projects planned or under way in Qatar as it gears up to host the World Cup in 2022.
There is a limited role for local banks because infrastructure projects are so long-term, around 20 or 25 years, says a Qatar-based banker. We were interested but the commercial terms dont make sense for us.
Local banks dont have the resource base to commit capital for such long periods, while international lenders set tighter pricing on their finance than local banks can compete with.
Bidders also put together financing packages for their bids, bringing on board banks they already have relationships with in their home markets.
Attempts to increase the role of Qatari banks have been unsuccessful.
Facility D independent power and water project (IWPP), which is being developed by Japans Mitsubishi Corporation and Tokyo Electric Power Corporation, is expected to rely on mainly Japanese lenders.
We had discussions on making structures better for local banks but they were unsuccessful, say the banker. Developers have to factor in the cost of financing, so they need to control the entire period of the finance package, so local banks are not interested.
There have been enough contractor finance opportunities to allow steady loan growth of around 10 per cent a year for local banks, with terms of just a few years. For example, Al-Khalij Commercial Bank has been active in financing contractors on the mega reservoir project.
However, contractor financing needs may moderate as lower oil prices cause Doha to prioritise its spending.