SWOT Analysis: Projects, ECA and Structured Finance in MENA

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.

To learn more about our Project, ECA and Structured Finance Middle East & Africa 2018 conference (24-25 October, Intercontinental Festival City, Dubai), click here.

 

Strengths

• 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

 

Weaknesses

• 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

 

Opportunities

• 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

 

Threats

• 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