The project finance market has been particularly active during 2012 so far. New regulations carved out in response to the financial crisis actually make it less profitable for banks to fund the development of infrastructure projects.
While the effects of this have not yet been fully felt, it is apparent in the different approaches being taken by the developers of two infrastructure schemes in the UAE that have started talks with banks to borrow billions of dollars.
Emirates Aluminium (Emal), a joint venture scheme between Dubai and Abu Dhabi, is trying to raise around $4bn. It wants to get $2bn from banks in a long-term syndicated loan. In a twist to the conventional way of financing projects, it also aims to raise $1bn from the bond markets, a move it hopes will convince lenders that it is not too reliant on strained long-term funding markets.
Etihad Rail, which will ultimately link up the seven emirates of the UAE with a passenger and industrial railway, is planning to raise around $1.3bn, but has chosen a different strategy to attract banks. It has limited the tenor of the deal to about five years, hoping it will bring in international and local banks.
Both deals point the way forward for the future of financing infrastructure in the region. Where possible, borrowers will either try and use cheaper short-term debt to make their deals more attractive to banks, or the bond markets to reduce their reliance on them. A combination of both is likely to emerge as the favoured fundraising method.
Abu Dhabi has long talked up the need to use the bond markets to recycle bank capital tied up in long-term schemes. It is now being forced to do so.