Although the collapse of the US sub- prime mortgage market, and the mid-March collapse of US investment bank Bear Sterns, is hitting the reputation and capacity of many of the world’s biggest financial institutions, it is the scale of global giants such as HSBC, Citigroup and The Royal Bank of Scotland (RBS) that puts them in such a strong position.
It is only these institutions that have had the professional and financial capability to put together the multi-billion-dollar debt packages required in the region. Currently, local banks are unable to compete at this level. But the market is shifting.
The rapid expansion of the region’s project sector provides an opportunity for local institutions to take a far greater role in project finance, and governments in the region are keen for local institutions to raise their capital levels through mergers, acquisitions and listings.
The growth of the Islamic finance market presents another opportunity for regional banks. Borrowers seeking sharia-compliant finance prefer to obtain it from local Islamic institutions. But unless such banks make efforts to grow their assets, international firms will maintain their market-leading position.
Special Report: Banking – Index of all stories
Data: Major project financings in the Middle East
MEED lists the Middle East’s top projects financings from the year 2006 to date
A lack of liquidity
Analysis of the region’s project finance market
Sharia deals enter mainstream
Sharia-compliant structures are becoming increasingly common
Tight market hits big deals
Demand for financing of billion-dollar-plus projects is increasing but difficult to raise
Rising costs delay projects
Basic infrastructure such as power is more urgently needed than commercial industrial schemes
Riyadh puts the markets to work
Saudi projects are raising capital through initial public offerings, reducing the need for debt
Funds struggle to deliver results
Investment funds targeted at infrastructure promise returns of more than 2 per cent, but achieving this will be tough
Credit agencies set for bigger role
The role of government credit agencies is growing as new sources of liquidity are needed
Commentary: Lack of dollars will delay deals
Bankers watching work dry up are getting increasingly pessimistic