The below is a look at the strengths, weaknesses, opportunities and threats present in the Middle East and Africa’s structured and project finance environment this year.
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- Governments and regulators are updating their frameworks to facilitate greater (and freer) flow of private capital
- There is big project pipeline of infrastructure and real estate projects waiting to come online across the GCC
- Regional banking markets are liquid
- Strong appetite amongst global asset managers and institutional investors for GCC credit (including project bonds)
- Governments have indicated their preferred method of financing projects is via a soft-mini perm structure through construction, followed by a capital markets (project bond) take-out
- ECAs, DFIs and IFIs are looking to increase their exposure to the Middle East and Africa across projects, real estate and corporate sectors
- Successful IPOs in UAE and Saudi Arabia hint at the prospect of more IPOs to finance corporates and projects in the region
- Launch of REITS in UAE and Saudi Arabia has opened up access to a new source of liquidity for real estate; and opening potential for more structured instruments to finance regional projects
- Strong project pipeline has not been backed-up by a timeline of when projects will come online
- Limited local market expertise and understanding of how to work with (and maximise the liquidity of) ECAs, and perceived to be time-consuming and admin heavy
- Uncertainty around risk allocation when using PPPs to finance infrastructure projects
- Swaps and hedges incorporated into existing Greenfield projects limit the ability to refinance in the bond markets
- IPOs, REITS, PPPs, Project Bonds: Governments across the region recognise the need to access private sector capital
- Governments are scaling back their financial support to GREs (and looking for a return of their equity); meaning companies need to work with banks to maximise their access to loans, bonds/sukuk, ECAs to successfully finance themselves
- ECAs are looking to take part in the growing real estate pipeline across the region and are willing to relax their requirements and criteria in order to secure participation
- A wall of refinancing in 2018/19 and historically low interest rates will lead to increase activity in the project bond market
- Rising (and potential of further rises) of interest rates could mean higher financing and refinancing costs for corporates and project companies
- Corruption in Africa is impacting access to capital for companies and developers
- High-profile restructuring cases in GCC could threaten or strengthen the region’s capital markets depending on how they are resolved
- Is there a threat of structural reforms not being followed-through on should oil price rebound?
- Geo-politics globally continue to weigh on investors’ minds