Special Report Contents

• Funding challenges ahead despite healthy projects pipeline
• Borrowers weigh project financing alternatives
• Kuwait leads 2016 project finance pipeline
• Interest returns in private financing
• Projects funding gives contractors the edge
• Iran plans return to sukuk markets
• Infrastructure financing back on the agenda
• Video Comment: Kuwait looks the most promising 2016 project finance market

UK Export Finance (UKEF) is ready to meet rising demand for export credit finance in the Middle East.

Export credit agencies (ECAs) took an important role in direct lending for project finance in the region following the 2007 financial crisis. They have created higher expectations of their activity, and UKEF plans to keep lending.

“Direct lending is now an integral part of our offering,” says Tahir Ahmed, head of civil and defence at UK Export Finance. “The attraction of direct lending is long-term fixed-rate funding. Our preferred model is to combine loan guarantees and direct lending.”

Cautious lending

An increase in activity may be driven by falling oil revenues and more cautious lending by commercial banks. If projects go ahead, UKEF could increase its support and direct lending in the construction and infrastructure, aviation and oil and gas sectors. UKEF support in the Middle East and Africa increased to £1.27bn ($1.9bn), or 47 per cent of total support, in 2014/15.

UKEF is now more able to be involved in supply chain finance, intellectual property exports, and content not directly attributed to UK-based firms.

“UKEF’s new powers, according to changes in the governing act a few months ago, give us more flexibility,” says Ahmed. “We can support more complex contract structures. In the Middle East, local-to-local contracts are important, but we can wrap them as part of overall financing if it is conducive to UK exports.”

UK involvement

As long as a project has a minimum of 20 per cent UK content, including as part of the supply chain, it is eligible for UKEF support.

Saudi Arabia and the UAE are among the top markets for UKEF. Borrowers include Sadara Chemical and Saudi Kayan Petrochemical, both in Saudi Arabia, and Emirates airline and Meraas Holding in the UAE.

UKEF expects to work intensively in Dubai, Oman, Egypt and Iraq in the near future. ECAs play an especially important role where commercial banks are wary of taking on risk.

“We are looking at projects in Egypt,” says Ahmed. “ECAs will be an essential part of the financing mix there. If the banks could do it alone, we wouldn’t be engaged. UKEF is needed there.”

ECA support has already been a crucial factor in securing financing in Egypt, as it attempts to attract billions in investment.

Recent high-profile deals by UKEF have focused on Dubai. These include $110m in contractor finance for UK/local Carillion al-Futtaim to build the World Trade Centre expansion, and $52m for Kier Construction on Meraas’ Dubai Parks & Resorts project.

The ECA also offered $2bn of export credit guarantees in 2014 for the planned $32bn expansion of Al-Maktoum International Airport, but no decision has been made on how the funds will be deployed. Dubai Airports Engineering Projects (DAEP) is expected to make an announcement at the Dubai Airshow in November.

This is not the only exceptional support to Dubai’s aviation sector; UKEF guaranteed a ground-breaking $913m sukuk (Islamic bond) issued by Dubai’s flagship carrier Emirates.

“UKEF was responding to demand from Emirates,” says Ahmed. “We would consider guaranteeing sukuk in other markets.”