Abu Dhabi to tap debt market for road project

Traffic from Abu Dhabi to Al Ain will be diverted temporarily to execute road works associated with the reconstruction of Mafraq interchange. (FILE)

Abu Dhabi is expected to begin raising Dh9 billion from banks and the debt capital market this year to fund the region's first transport private public partnership (PPP) project.

A senior official said up to 30 banks are expected to participate in the Mafraq-Ghweifat motorway, the Dh10bn project that will link Mafraq (south of the Abu Dhabi metropolitan area) to the border post with Saudi Arabia at Ghweifat in the western part.

Currently, the Abu Dhabi Department of Transport is evaluating the bids from the three international consortia and is set to announce the preferred bidder in April.

"We should finish the technical evaluation by the end of March and the financial in April so the preferred bidder will be selected by late April. We hope that in the second half of this year, the four-year construction period will start," John Alan Lee, Highway and Transport Planning Advisor, Abu Dhabi Department of Transport told Emirates Business.

"It may take four to five months for the financial close. Once the preferred bidder is selected, the banks will start to gather around," he said on the sidelines of Road Planning Design and Construction 2010 forum.

He said the problem with the project of this size is that there is not enough liquidity in the market to provide fully committed finance to all bidders. "So, in the end, we expect 20-30 banks to support the final bidding consortium," he added. Only 10 per cent or Dh1bn will come from equity players, which will be split between the consortium and Abu Dhabi sovereign funds – AD Invest and Mubadala. The Dh9bn will have to be raised by the consortium from the money markets, 80 per cent of those may come from banks and the other 20 per cent from the bond market.

"Equity is expensive – it's people investing money and wanting the return much later. They run the risk. If things don't work out they don't get the money back, whereas debt is much cheaper so you want to use debt as much as possible," Lee said.

The government will not issue any debt instrument and will also not issue a guarantee for the project. But Lee is positive that the project will be financed.

"Lenders know that as soon as the construction is finished, they're going get their money back from the stream of payments," he said.

No tolls are envisaged because it will not only discourage road use, lenders will also not accept risks such as traffic or toll revenue. Rather, a unitary charge will kick in when usable segments are completed in specified sequence. "The government will pay the annual charge once the road starts operating, but only if it meets the key performance indicators. Otherwise there will be deductions," Lee said.

Under the plan, the winning concession will design and build a motorway and then maintain it for 25 years. The three consortia being evaluated are each a mix of international and local firms.

The Irtibaat Consortium is made up of Macquarie Capital Group; equity participants Abu Dhabi Commercial Bank and Construtora Norberto Odebrecht; construction firms NV Besix and Al Jaber Transport and General Contracting; Transfield Services International; and Mouchel Middle East.

The second group Mafraq Motorway Group comprises Strabag; UAE civil engineering and building contractors Saif Bin Darwish; Joannou & Paraskevaides; Concession Operations, J'&'P Avax; and Egis Projects.

The third bidder, MTD-CSCEC Consortium, is made up of MTD Group; China State Engineering Construction Company and UAE's Ghantoot Transport.

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