The value of project finance transactions in the Middle East has more than halved in 2012 as several large deals failed to reach financial close before the end of the year.
In total, only $8.6bn of project finance transactions reached financial close last year, down from $23bn in 2011. The number of deals remained roughly flat.
It is the slowest year for project financial transactions since before 2005. Even at the height of the financial crisis, deal values did not fall below $20bn.
The slowdown is largely attributable to the Sadara Chemical project, a joint venture of Saudi Aramco and the US’ Dow Chemical. The sponsors had hoped the $20bn scheme would reach financial close before the end of 2012, but the deal is still outstanding and is now not expected to be completed until the second quarter of 2013.
Appetite from lenders to do long-tenor deals has waned as a result of the financial crisis, problems in the eurozone and new banking regulations that make it less attractive to offer loans of 15 years or longer.
There are some signs this may be beginning to change in early 2013. “Our high cost of funding has made us uncompetitive for Middle East deals, compared with the regional banks. We are seeing that starting to change now, so European banks should be more active in 2013 than they were in 2012,” says one syndications banker at a French bank.
If large transactions such as the Sadara project, and a $4.6bn deal to fund phase two of Emirates Aluminium (Emal), are completed in the first half of 2013 as planned, it should give the market a significant boost to make up for disappointing numbers last year.