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02 December 2023

MidEast project financing costs mount

By Agencies


Middle Eastern companies looking to raise project financing are facing rising borrowing costs because of the growing financial crisis, but lenders have yet to agree where pricing should be set, banking sources said.


Too few loans have been placed since September for a consensus on pricing to have been established, they said. However, calls for a 20-30 basis points rise from pre-crisis levels, when strong oil prices fuelled unprecedented liquidity in the regional banking market, are not enough, they said.


"We need to see more than a 20-30 basis points rise ... the reality is 20 basis points isn't doing it," a banker said.


The credit crisis has also prompted the return of "market flex" to loans, which allows the arranging banks to increase pricing on a facility if the deal is not receiving support from banks in syndication.


"You can't underwrite a deal without substantial flex now," a banker said.


Borrowers are also facing higher construction costs across the Gulf, driven by increases in global prices for materials and in wages stemming from competition among regional contractors. This means projects are raising more debt to cover costs, and are taking longer to complete.


"There is not a single project in the Gulf that is on time," a banker said.



First Test


Emirates Aluminium's $4.94 billion (Dh18.03 billion) financing, which backs its construction of an aluminium smelter in Abu Dhabi, will launch to syndication next week, providing the Middle Eastern project loan market with the first deal of 2008.


Bankers say the deal includes a market flex but are confident it will prove to be a popular credit, with lenders having access to replenished 2008 budgets.


"There is just $1 billion (Dh3.65 billion) to raise in general after widening the mandated lead arranger group ... we expect the deal to close oversubscribed, it's a question of by how much," a banker said.


Saudi Kayan Petrochemical Co's $1.8 billion (Dh6.57 billion) loan to back its petrochemicals project closed oversubscribed in January after syndicating at the end of 2007, but bankers said the deal had to offer generous pricing.


They said the deal paid fees of 100 basis points, which is double what it would have paid pre-crisis.


"The money is out there but you have to pay for it," a banker said.


More to come


A number of project loans in the region have yet to appoint arranging banks.


A Total-led group is selecting arranging banks to finance Yemen's liquefied natural gas (LNG) project, which will include a syndicated loan of $800 million (Dh2.92 billion) to $1 billion (Dh3.65 billion).


Bahrain's Ministry of Finance has asked firms to bid for the contract to build the Addur independent water and power plant. The bidders are in talks with banks to secure funding, which is expected to include a $1 billion bank loan.


State-owned Qatar Petroleum will approach banks in March for $2.5 billion (Dh9.13 billion) to back its construction of the country's largest power plant, the Ras Laffan C independent water and power project.  (Reuters)