How attractive is the infrastructure sector in the Middle East and how does HSBC’s global presence help it win business in the region?

There were about $100bn of infrastructure projects in the Middle East in 2012, $138bn in 2013 and $160bn this year. If you compare 2014 with 2012, that is a 60 per cent increase. That is substantial.

A lot of contractors on the bigger projects in this region tend to be international firms from countries such as South Korea, China and Turkey. Due to our international presence, we are likely to have existing relationships with these clients in their home markets. This means we are able to hear about projects in this region earlier than local banks and commence a dialogue with the contractors on how best to support their needs.

We also already have existing connections with those international contractors, unlike local players who have to run around and form new relationships with potential bidders once the project is announced.

At HSBC, we are in a position to back quite a few of the firms or consortiums bidding for the project by providing tender bonds. We would try to back four or five of, say, six potential bidders, provided we feel comfortable with their risk profiles. In that instance, there is a pretty good chance you might win one of them.

Following the issue of tender bonds for bidding clients, we are then in a position to provide the successful bidders with performance bonds and other guarantee instruments and finally the financing needed for the project.

Following on from that, there are opportunities to provide financing for the subcontractors, and it all sort of trickles down. It is at the subcontractor level where we usually see local banks get on board, although we can still play a role at that level.

Local banks can often offer better pricing to contractors and subcontractors. How important is the price of funding in a client’s decision-making process?

As part of the decision matrix, pricing is important. I wouldn’t say it is the most important thing, though.

You want to be dealing with a bank of reputation, because if you are a government client, you would like a guarantee from a tier-one bank that can be relied upon to pay out on a performance bond; for instance, if a contractor does not complete the project to the agreed standards.

Clearly, if your price is completely out of the market, contractors will use someone else. But other factors also come into play: service level; turnaround time; reputation; relationship; and whether you have helped the client within other global markets.

A lot of large companies will look at it from a relationship rather than purely a transactional basis.

For example, we might be slightly more expensive in this market, but perhaps we have helped them out on a project in China or somewhere else. And that is one of the advantages of being an international bank. With these global companies, you don’t just help them in one place; you help them in several places, and in some markets you will be cheaper than the local banks. In other ones, you might be more expensive. But overall you make a better return.

Where do you see the biggest opportunities in the Middle East and North Africa?

Saudi Arabia is by far the biggest opportunity; just look at the magnitude of the projects. Out of a regional total of roughly $168bn-worth of project contract awards this year, 55-60 per cent of that is in Saudi Arabia. In second place is the UAE, then Qatar, Kuwait and Oman.

In Algeria, there is a lot of focus on energy infrastructure. We are still awaiting the same level of investment in social infrastructure there as seen in other markets.

Do you think GCC governments’ oil revenues are going to fall long-term?

They will probably flat line. And I think a lot of the infrastructure play by governments is to try to move away from hydrocarbons reliance. If you look at Saudi Arabia, it is trying to create an industrial base. Dubai’s economy is 30 per cent trade, 20 per cent construction and 16 per cent transport, so Dubai has been able to become a trade, tourism and transport hub.

How long will this infrastructure boom go on for?

A lot of these schemes are not overnight projects, so once you decide to build a metro, it is an 8 to 10-year project. There will be a large number of projects under way over the next decade.

People talk about the 2022 World Cup in Qatar, but there is a lot of infrastructure going on that is not directly related to the tournament as well. There are rail networks, metro networks and, potentially, a causeway over to Bahrain. 

From a bank’s point of view, there are financing opportunities all along the lifeline of these projects, from initial guarantees to contractor financing up to large-scale structured project financings.