There are signs that the use of bond financing could be about to take off in the project finance capital markets of Gulf countries, according to a Credit FAQ report by Standard & Poor’s ratings services.
“Overall, we see a number of factors pushing the development of project finance capital markets in GCC countries, including high infrastructure spending needs; growing populations; a period of relatively low investment yields; and robust sovereign creditworthiness,” said S&P in its report titled “How Project Bonds Could Plug The Gap In GCC Infrastructure Financing.”
These factors are matched by a variety of funding models that over time should spawn more project capital market issuance, it stated.
The S&P report pointed out that the recent Ruwais Power Company (Shuweihat 2) project transaction, which includes $825 million of bond issuance, was a perfect example of how bank loans and bonds could be used together in co-financed projects.
“We consider that project financing (both bank and bond) will be increasingly used in the region. However, we believe it is too early to tell whether we have reached a tipping point in project finance capital market activity,” observed S&P’s credit analyst Karim Nassif.
“The availability and tenor of funding by major local and regional banks, along with the pricing of bank loans relative to bonds, will be key measures in determining the progress of project finance capital markets in GCC countries over time,” he added.