The document provides an exhaustive overview of project finance in the MENA region, including definitions, market analysis, and evolving trends since 2011. It emphasizes the significance of public-private partnerships, emerging sectors such as renewable energy, and the impact of regulatory environments on financing structures. Additionally, it outlines the shifting roles of various stakeholders, including sponsors and governments, amid changing economic conditions and project ownership dynamics.

1. Highlighting
Crucial Factors in
MENA Project
Finance Decisions
Loay Ghazaleh – Advisor - B. Sc. Civil Eng. , MBA
1

2. 1. INTRODUCTION TO PROJECT FINANCE
2. MENA PROJECT FINANCE MARKET
3. 2011 GLOBAL PF LEAGUE PLAYERS
4. EMERGING SECTORS IN MENA PROJECT FINANCE
5. THE NEW PPP ENVIRONMENT
6. HIGHLIGHTS OF PF CHALLENGES
7. MINI PERMS ALTERNATIVE TO LONG TERM FINANCING
8. FULL AMORTIZATION ALTERNATIVE TO MINI PERMS
9. BONDS IN TODAY’S PROJECT FINANCE MARKET
10.THE ROAD AHEAD….
2
CONTENTS

3. PROJECT FINANCE
3

4. * A Project is normally a long-term infrastructure, industrial or
public services scheme, development or undertaking having:
* Large size,
* Intensive capital requirement.
* Finite and long Life.
* Few diversification opportunities i.e. assets specific.
* Standalone entity.
* High operating margins.
* Significant free cash flows.
* Such projects are usually government regulated and monitored
which are allowed to a private entity on partnership basis B.O.O.
or B.O.T. basis (PPP).
*What is a Project?
4

5. International Project Finance Association
(IPFA) defined project financing as:
* “The financing of long-term infrastructure, industrial
projects and public services based upon a non-recourse or
limited recourse financial structure where project debt and
equity used to finance the project are paid back from the
cash flows generated by the project.”
* Project finance is especially attractive to the private sector
because they can fund major projects off balance sheet.
*What is Project Financing?
5

6. * Transportation & Related Facilities (Roads, Rail, Light Rail) (Airports, Ports)
* Typically PPP transactions, incorporating availability based, shadow toll & real toll
payment mechanisms
* Mix of regulated and commercial revenues
* Power (Power Plants, Transmission)
* Regulated revenues, typically set for a fixed period
* Long term power contracts focused on credit strength of off-taker
* PPP / PFI Social Accommodation (Hospitals, Prisons, Schools)
* Typically availability based payment based structures
* Long tenor concession
* Construction and maintenance risks vary
* Renewables (Wind Farms, Solar, Waste to Energy)
* Nature of tariff regime / subsidies
* Need a favorable regulatory environment to entice development of renewable
sector
* Gas & Commodities (LNG, Exploration, Production, Pipelines, Petrochemicals)
* Strong preference for limited market risk exposure
* Focus on credit worthy off-takers and the strategic importance of the project for
the country/region
* Where Is Project Finance Utilized? 6

7. * Pre Financing Stage
* Project identification
* Risk identification & minimizing
* Technical and financial feasibility
* Financing Stage
* Equity arrangement
* Negotiation and syndication
* Commitments and documentation
* Cash disbursement.
* Post Financing Stage
* Monitoring and review
* Financial Closure / Project Closure
* Repayments & Subsequent monitoring.
*Stages in Project Financing
7

8. * Independent, single purpose company formed to build and operate the project (SPV)
* Extensive contracting
* As many as 15 parties in up to 1000 contracts.
* Contracts govern inputs, off take, construction and operation.
* Government contracts/concessions: one off or operate transfer.
* Ancillary contracts include financial hedges, insurance for Force Majeure, etc.
* Highly concentrated equity and debt ownership
* One to three equity sponsors.
* Syndicate of banks and/or financial institutions provides credit.
* Governing Board comprised of mainly affiliated directors from sponsoring firms.
* Extremely high debt levels
* Mean debt of 70% and as high as nearly 100%.
* Balance of capital provided by sponsors in the form of equity or quasi equity
(subordinated debt).
* Debt is non-recourse to the sponsors.
* Debt service depends exclusively on project revenues.
* Has higher spreads than corporate debt.
*General Characteristics of PF 8

9. MENA PF MARKET TODAY (2011/12)
9

10. *ME & the World PF Market
10

11. * Pre 2000 (Phase 1 – PF Start Up)
* Plain vanilla, mortgage style / back-ended debt repayment profiles
* Short tenors and mid-level pricing and fee structures
* 2000 – 2004 (Phase 2 – Longer Tenors)
* Simple loan structures, mortgage style / back-ended debt repayment profiles
* Tenors of 15-20 years, start of pressure on pricing and fee structures
* 2004 – 2008 Pre-crisis (Phase 3 – Growth & Structured Complexity)
* Introduction of more complex structures such as bullet repayments
* Some form of Government risk - PPA risk introduced. E.g. Oman. PPA 15 years
* Low level pricing due to high competition from lenders on both margins & structure
* 2008 –2009 Crisis & Down Turn (Phase 4)
* Difficult closing in 2008 and 2009 (Shuweihat 2 UAE, Al Dur, Rabigh IPP)
* Scarcity of capital(USD Liquidity, Basel 3 focus for European banks…) , more involvement of Export
Credit Agencies
* Necessity of Insurance covers and direct OIL funding
* Structural complexity no more favored. Perm structures with shorter tenors
* Margins volatility ,for example; committing to pricing over 30 -60 days were problematic.
* 2010 –2011 Slow Recovery (Phase 5)
* Slow departure from the mini-perms and lower stable pricing combined with better risk sharing / JV’s
* 2012 Onwards (Phase 6) – Uncertain PF Direction
* The PPP model may have been broken , refinancing , more equity , smaller tickets can become the norm
*6 phrases of PF market in ME 11

12. * No. of banks in the PF market has substantially reduced since 2008
* No. of banks involved in PF market in ME has gone down from over 40
during peak times to only about 15
* Underwriting availability has dried up
* Margins are higher on account of liquidity costs
* European banks are fast receding from the region
* Ongoing crisis in Greece and Euro Zone
* Introduction of BASEL III: Longer tenors are no longer attractive to banks
* Regional Banks are playing a much more active role
* More than 50% of the loans raised in 2011 were from Regional Banks
* Increased use local currency tranches
* Export Credit Agencies becoming increasingly important in project
finance
* 20-25% of the debt typically now either through direct funding or covered
loans by ECAs
* Dominance of US – European – equipment manufacturers is on the
decline – Japanese, Korean & Chinese gaining traction in market
* Significant Shift in PF Market Post 2008
12

13. * 2011 Peaked 2Q, 2Q 2012?
13
* Global Loan Volume

14. * 2011 Loans Refinancing Use Primarily
14
* Loans Use

15. * 2011 – 12% are Greater than 5 Years
* Global Loan Maturity Analysis
15

16. * 2010 - 2011 Nearly Stable PF Margins, 2012!
* Global Loan Margins Trends
16

17. * 2011 Peaked 2Q, 2012 2Q Recovery?
17
* EMEA PF Volume

18. * IH 2012 Average Top 10 MLA Ticket 150 Mil USD
* EMEA Average Ticket / Deal (Top 10 MLA)
18

19. * IH 2012 Deal Size Up, No. of Deals Down!
* EMEA Average Deal Size, Number of Deals
19

20. 2011 GLOBAL PF LEAGUE PLAYERS
20
* League Data Source; Project Finance Magazine Web Site

21. Amount Trans-
Pos. * Mandated Arrangers ($m.) actions
%share
1 State Bank of India 27,169 76 11.2
2 BNP Paribas SA 10,805 78 4.5
3 IDBI Bank Ltd 9,991 23 4.1
4 Axis Bank Ltd 9,301 29 3.8
Infrastructure Development
5 7,941 28 3.3
Finance Co Ltd - IDFC
6 Credit Agricole SA 7,555 80 3.1
7 Mitsubishi UFJ Financial Group Inc. 6,882 69 2.8
8 Banco Santander SA 6,108 80 2.5
9 Societe Generale 6,047 65 2.5
10 Korea Finance Corp 5,651 25 2.3
* 2011 Global PF League Players21 Mandated Arrangers (MLA)
-

22. Amount Trans-
Pos. * Providers ($m.) actions
%share
1 State Bank of India 12,900 105 5.4
2 BNP Paribas SA 9,843 83 4.1
3 Credit Agricole SA 6,980 84 2.9
4 Societe Generale 6,287 73 2.6
5 Mitsubishi UFJ Financial Group Inc. 5,896 78 2.5
6 Banco Santander SA 5,412 83 2.3
Infrastructure Development
7 4,734 38 2.0
Finance Co Ltd - IDFC
8 BPCE SA 4,195 55 1.8
9 ING Group NV 4,011 56 1.7
10 HSBC Holdings plc. 3,878 39 1.6
* 2011 Global PF League Players - Providers
22

23. Amount Trans-
Pos. * Financial Advisors ($m.) actions
%share
1 State Bank of India 28,038 47 15.7
2 Societe Generale 8,517 9 4.8
3 IDBI Bank Ltd 7,463 16 4.2
4 Banque Saudi Fransi (BSF) 7,113 1 4.0
4 Credit Agricole SA 7,113 1 4.0
6 Royal Bank of Scotland Group plc. 6,476 6 3.6
7 Credit Suisse Group 5,970 4 3.3
8 Citigroup Inc. 5,695 10 3.2
9 PricewaterhouseCoopers LLP 4,946 25 2.8
10 BPCE SA 4,692 5 2.6
* 2011 Global PF League Players – Financial Advisors
23

24. Amount Trans-
Pos. *
Sponsors ($m.) actions
%share
1 Saudi Arabian Oil Co - Saudi Aramco 7,113 1 2.1
1 Total SA 7,113 1 2.1
3 Tata Group 5,185 7 1.5
4 BP plc. 4,750 2 1.4
ACS Actividades de Construcción y
5 4,550 15 1.3
Servicios SA
6 Essar Group 4,501 10 1.3
7 Jaiprakash Associates Ltd 4,220 2 1.2
8 Alcoa Inc. 4,160 4 1.2
9 Saudi Arabian Mining Co - Ma'aden 3,763 2 1.1
10 Aditya Birla Group 3,535 5 1.0
* 2011 Global PF League Players - Sponsors
24

25. Amount Trans-
Pos. * Legal Advisors ($m.) actions
%share
1 Linklaters 22,895 36 7.9
2 Luthra & Luthra 22,500 24 7.8
3 Allen & Overy 19,769 57 6.8
4 Clifford Chance LLP 16,285 53 5.6
Amarchand & Mangaldas & Suresh A
5 11,174 19 3.9
Shroff & Co
6 Milbank Tweed Hadley & McCloy 10,319 38 3.6
7 White & Case LLP 10,292 32 3.6
8 Latham & Watkins 8,767 38 3.0
SJ Law Advocates & Solicitors
9 7,470 22 2.6
(India)
10 Cuatrecasas Goncalves Pereira SLP 6,103 24 2.1
* 2011 Global PF League Players – Legal Advisors
25

26. Amount
($m.) Transactions % share
League Arrangers 97,450 553 40
Total Global Arrangers 242,149 816 100
League Providers 64,135 694 27
Total Global Provides 239,438 806 100
League Financial Advisers 86,021 124 48
Total Global Financial Advisors 178,785 297 100
League Sponsors 48,889 49 14
Total Global Sponsors 340,774 839 100
League Legal Advisers 135,574 343 47
Total Global Legal Advisers 289,595 686 100
*Summary 2011 Global
PF League Players
26

27. * 2012 EMEA Loans Market Data
27

28. EMERGING SECTORS IN MENA PF
28

29. *Renewable energy projects are beginning to
emerge on the back of renewable energy targets
proposed by many GCC member countries.
*Most GCC member countries have min 5%
renewable energy procurement target by 2020.
*More than 9000 MW is either under construction
or under planning stages in GCC – dominated by
solar and wind.
*Renewables on the Rise
29

30. *Historically
the ME Power market has been
dominated by Multinational Utility
Companies – GDP Suez, International Power,
Marubeni, AES
*Over the last 1 years, a new homegrown set
developers has begun to emerge – ACWA
Power, TAQA, QWEC
*These developers initially focused on their
home market but have grown increasingly
international in their footprint and targets
* New Developers in ME Power Sector
30

31. * Paris Sorbonne (UAE) – 2000 student green field campus in
Abu Dhabi, financial close achieved in Dec 2008
* Zayed University (UAE) – 6000 student green field campus in
Abu Dhabi, financial close achieved in Nov 2009
* Muharraq Waste Water Project (Bahrain) – 100,000 m3/day
waste water treatment plant, financial close achieved in Sep
2011
* Medina Airport Scheme (Saudi Arabia) – A modern terminal
capable of handling 8 MN passengers p.a. by 2015, first PPP in
airports in the GCC
*Social & Infrastructure Projects
31

32. THE NEW PPP ENVIRONMENT
32

33. * Substantialinvolvement of sponsors in all phases and
matters associated with financing. Sponsors performing
large number of activities previously performed by the
lead arranger: timelines, arrange meetings, distribute
information & follow-up.
* Selection of advisors became a more relevant process as
Advisors need to work in a coordinated manner for a long
period under stress.
* Timing of project financing and development usually
exceeds an election cycle of 4 years. Thus politics play a
significant role and the project is likely to switch from
desired to undesired depending on the political agenda.
*Stakeholders New Roles
33

34. Pension
Multi - Regional
ECA’s Funds / Guarantee
Laterals Banks
Insurance
KfW Pension
EIB EKF (DN) EIB
(Germany) (DN)
JBIC Green Bank
EBRD Alliance IBRD
(Japan) (UK)
KEXIM JICA
Islamic DB Axa IDA (WB)
(Korea) (Japan)
Ex-Im Bank
IFC (WB) USAID (USA) Aviva IFC (WB)
(USA)
AusAID MIGA
AfDB ECGD (UK) Munich Re
(Australia) ( Pol. Risk)
*Wider Fund Sources & Guarantees 34

35. * The role of governments, at all levels, changes with public opinion.
Governments have weak positions especially after beginning of
construction. Timing issues are important when obtaining any
amendment in applicable laws, concessions or permits.
* Authorities especially elected ones are less willing to take risks, even if
the law empowers them to make decisions. Governments can be
expected to be a sidekick and not the driver.
* Incomplete and accurate property registries create a difficult scenario to
obtain rights over third party land required by the project. The cost of
obtaining rights to land for use by projects is becoming increasingly
expensive and more complex.
* Although in paper easements and right of way can be imposed through a
speedy administrative procedure, it does not happen in practice where
procedures may take between 18 – 24 months.
*Lesser Government’s Facilitation 35

36. * Social and environmental matters have become
increasingly relevant. Sponsors need community relations
and social investment plan, even if it comprises acting in
lieu of the Government.
* The media, whether national or local, has also taken an
increasingly important role in the development of projects
and needs to be incorporated in any development strategy.
* Localinterests groups, NGO’s and other disenfranchised
groups also need to be included in the analysis and any
action plans.
*Social & Environmental License
36

37. *Tight Syndication Documentation
37

38. * Conditions To Underwriting Commitment
* “subject to contract”
* Due diligence
* Governmental consents
* No material adverse change
* Market flex
* Two Important Dates
* Expiry date for offer
* Expiry date of exclusivity
* Types of Underwriting
* “Fully underwritten”
* “Best efforts” / “best endeavors”
* “Partially underwritten”
*The Underwriting Process
38

39. * Common Term Agreement
* Loan Agreements including fixed & floating mix
* Inter-creditor Agreement
* Disbursement (or Accounts) Agreement
* Security Documents
* Assignments of contract rights and insurances
* Control over bank accounts
* Direct off take agreements
* Covenants / Terms
* Financial covenants - ratios
* Non financial covenants – negative pledge
* Cash sweeps
* Market disruption
*General Documentations
39

40. * Types of direct sponsor support include:
* Repayment guarantees
* Completion (shortfall) guarantees
* Cash injection undertakings (e.g., for cost overruns)
* Working capital maintenance agreements
* Price underpinning (to assure “floor” price for product)
* Comfort letters
* Equity lock up / Reserve accounts
* Types of indirect sponsor support include:
* Take-or-pay contracts - throughput agreement - (Usually in oil & gas)
* Supply maintenance agreements
* Other types of support may include:
* Operation and maintenance agreement with one or more project
sponsors
*Sponsor Support
40

41. *Types of host government support include:
*Concessions
*Licenses and approvals
*Expropriation guarantees
*Exchange availability undertakings
*Types of insurance support include:
*Commercial insurance
*Export credit guarantees
*Multilateral agency guarantee arrangements
*Multilateral “umbrella”
*Host Government Support
41

42. * Multiple funding sources = complex inter-creditor issues..
* Common desire for control. Regulation for decision making.
* Disbursement conditions ( funds drawdown)
* Mismatch of currencies
* ECA disbursement requirements (“eligible goods”, OECD Guidelines)
* Voting rights with respect to waivers and consents
* Do ECAs taking only political risk have a right to vote?
* Once ECA’s take commercial risks, can they be treated equally?
* Right of Veto over issues that increase claims under ECA’s guarantees?
* Security sharing
* Subordination & ranking of payments.
* Acceleration rights / trigger events.
* Decisions regarding enforcement actions
*Inter-Creditor Agreements
42

43. * Financial closure is the process of completing all project-related
financial requirements ( funds commitment & availability) and
setting up the disbursement accounts. Project commencement take
place after financial closure.
* Project closure is achieved when all project financial accounts are
closed, the project assets are disposed and the work site is released.
* Accounting closure is a prerequisite to project closure and the Post
Implementation Review (PIR).
*A project cannot be closed until all financial transactions are
complete, otherwise there may not be funds or authority to pay
outstanding invoices and charges.
* Accounting closure establishes final project costs for comparison
against budgeted costs as part of the PIR.
*Financial & Project Closure 43

44. Target rating
Senior
Tranche –
A/AA or
Project Bond Lower
OR Interest on
Senior Debt Senior Debt
Size depends on
Subordinated the project
Tranche
Normal or
Shareholder
funding elevated
level of
equity, shareholde
r,
mezzanine debt
HIGHLIGHTS OF PF CHALLENGES
44

45. * Time consuming. Limited capital makes larger deals are more difficult (e.g.
increased equity contributions, tighter lending covenants, etc.). Project
finance lending is struggling with more attractive corporate opportunities.
* Departure from the more conservative financing structures, namely in terms of
debt to equity ratios, shorter tenor s(mini-perms), wide margins and safe ratios
is still mid way.
* Club deals rather than syndication are still the norm. Banks are asking for
and exercising flex clauses in syndication; Lender relationships, sponsor
track record are critical.
* Availability of financing in the long-term bond market (both public and
private) is still low.
* Extra-conservative approach by lenders on due diligence and financing
structuring. Only stable and predictable cash flows are financeable.
* Fees and spreads are lower but still up; however, market feedback is not
always consistent and capital markets are changing.
*2012 PF Challenges
45

46. * Staggering & Sizing Projects
* Refinancing risk incentives to allow for mini-perm financing
structures – 5 to 10 years. Banks will lend for long term either
if there is a reduced overall Project’s debt dimension and
where a long term legal tenor is coupled with strong
refinancing incentives (mini-perm lending)
* Funding competition (i.e. pension funds, ECA’s), and
participation of supranational lenders like ADB, Islamic
Development Bank, EIB by lending or providing guarantees
especially in the rum-up (early operations) period.
* Utilizing a mix of floating & fixed interest rates (e.g. 30% fixed),
* Increase in Government contributions after project completion
*Addressing the Challenges
46

47. Risk Financial Solution
Construction Costs Fixed –price lump sum contract
Completion Risk Performance guarantees. Liquidated damages
Price Long –Medium term credit spreads
Stability of Financing Senior Debt with 12 – 15 year tenors
Operating Risk Standby debt & equity (provisions), insurance.
Environmental Risk Insurance
Technology Risk Expert evaluation and retention accounts.
Interest Rate Risk Swaps and Hedging (also Currency Risk)
Insolvency Risk Take over proceedings, Guarantees
Sovereign Risk - Forming the project company abroad
- External accounts for proceeds
- Political risk insurance (Expensive)
- Export Credit Guarantees
- Contractual sharing of political risk between
lenders and external project sponsors
- Government or regulatory undertaking to cover
policies on taxes, royalties, prices, monopolies.
- External guarantees or quasi guarantees
*Risk Solutions in PPP / PF 47

48. MINI PERMS ALTERNATIVE
48

49. Bank loan has a short legal maturity (five or
eight years) at which end:
*The major amount of the loan is still
outstanding;
*The sponsors/grantors face an event of
default if the refinancing does not occur;
*This could lead to a termination of the
concession or financing contract.
*Hard Mini-Perms
49

50. Legal maturity of the bank loan remains long term but two features
are added:
* Cash sweep: triggered at a specific date, after which some or all
free cash flow is used to prepay the debt outstanding instead of
allowing distributions to shareholder;
* Loan is fully repaid shorter than its legal maturity;
* Shareholders are submitted to a long period of zero/limited
distributions. The stronger impact on equity remuneration the
bigger the refinancing pressure;
* Margin ratchet: margin step-ups at specific dates, which make the
cost of borrowing more expensive if refinancing does not occur;
* Enables adequate remuneration of long term lending and partially
covers the risk that liquidity costs increase;
* Creates incentives to refinance.
*Soft Mini-Perms
50

51. * Refinancing risk is fully supported by the sponsors; however in the in
the event refinancing does not occur:
* The public sector pays for the margin ratchet - as margin ratchets are
included in base case, mini-perms will stress public sector financial
constraints and could force projects scope redefinitions or use public capital
contributions to fill the funding gap and Public sector will be demanding a
greater share of future refinancing proceeds.
* The sponsors take the impact of deferred distributions and lower IRRs
resulting from the cash sweep.
* Mini –Perm Grantors will try to achieve either the benefit of the
refinancing included into the price or potential short term costs can
provide value for money;
* Sponsors may take advantage within tender process in connection to
refinancing risks associated with mini-perm structures; however, the
issue remains as to how to hedge interest rate risk when you do not
know the loan amortization profile?
*Risks in Soft Mini –Perms 51

52. FULL AMORTIZATION ALTERNATIVE
52

53. Sponsors Grantor Banks
Higher IRR Match between Long term
Fully
Earlier distributions asset life cycle liquidity
Amortizing and financing uncertainty
tenor Lock-up to
potential
unfavorable
financial
conditions
Lower IRR (or impact Higher short Decreased long
Mini-Perms
base case) term financing term liquidity
Limited & deferred costs; uncertainty
distributions Refinancing risk; Ability to
Higher short term Default risk adequate
financing costs Affordability financing terms
Refinancing risk (or issues and conditions
share) to market
Default risk practice
*Which Offers Best Value?53

54. * The deals that have been financed using a mini-perm structure
caused affordability concerns for the public sector and
increased risk for the private sector.
* Although banks are willing to provide funds with shorter
maturities in the project finance sector, there are banks still
prepared to lend long term, consistent with PPP concession
periods. When combined with adequate funding sources, most
deals can still match their long-term assets with long-term
funding. Additional banks are willing to lend on long tenors if
there are considerable refinancing incentives.
* The Project Finance stakeholders should seek this opportunity
to improve the context for traditional project finance and to
keep safe Project Finance from the mini-perm trends.
*Shift Towards Fully Amortizing
Financing Structures?
54

55. Corporate Ratings
Moody's S&P and Fitch
… …
A1 A+
A2 A
A3 A-
Baa1 BBB+
Baa2 BBB
Baa3 BBB-
Ba1 BB+
Ba2 BB
Ba3 BB-
B1 B+
… …
BONDS IN TODAY’S PF MARKET
55

56. * Project Bonds Have Traditionally Been Overshadowed by the Bank
Market. International Project Finance Volumes
* Between 1995 and 2010, the project finance market was worth
$1.7 trillion with an average of $108bn raised per year
* On average, project bonds have accounted for 15% of this
funding, used primarily in completed projects.
* A material proportion of this was historically ‘wrapped’ by the
mono line insures which is now no longer a viable option
*Bonds Market
56

57. * Project bonds can be incorporated into the majority of well-
structured project financings before or after completion.
* Investors will take comfort from seeing a diverse bank syndicate
ranking alongside them and will focus on many of the same
fundamental credit issues
* However, they will often place additional emphasis on the following:
* Government support; strategic importance
* Geopolitical concerns
* Sponsor support; maintenance of ownership; distribution policy
* Construction risk; mitigation measures
* Quality of off-take; price and volume risk; tenor; off-taker profile
* Restrictions on leverage
* Future issuance and expansion plans
* Solid investment grade credit ratings
* Where Can Project Bonds be Utilized?
57

58. * For Issuers
* Important additional source of liquidity
* Long dated maturities and bullet structures available
* Proven deep investor demand (US, Europe and GCC)
* Well established structures, documentation and inter-creditor
arrangements
* Sits alongside bank and ECA financing and processes can be run in
parallel
* Competitive pricing
* For Investors
* Secured against real assets
* Solid and comprehensive security packages
* Portfolio diversification
* Incremental spread vs. like-rated corporate/sovereign debt
* Solid secondary trading performances
*Advantages of Project Bonds
58

59. * For Issuers
* Market timing/volatility
* Increased up-front and ongoing disclosure
* Effective investor marketing / education
* Repayment profile (bullet vs. amortizing)
* Limited currencies (e.g. no EUR … yet)
* Inter-sponsor / creditor considerations
* Negative carry (pre-funding / sinking fund)
* Refinancing considerations
* For Investors
* Increased credit intensity
* Typically lower secondary market liquidity
* Ongoing investor relations and provision of information
* Relative value given lack of precedents
* Pre-construction risk (and migration)
* Amortizing structures less preferable
* Bonds Considerations & Challenges 59

60. *Development of the Project Bond market is
important … and possible. Considerations for the
future:
*Importance of secondary market liquidity thru
improved mechanic for providing appropriate
levels of reporting .
*Change in projects road show promotion to
address the credit nature.
*Worth paying an upfront fee to compensate for
lower liquidity?
*Bonds for the Future …
60

61. *THE ROAD AHEAD….
61

62. * MENA Projects Pipeline
62

63. * Future for Renewables , Social and
Infrastructure projects?
* PPP or IWP, Metro Links, Hospitals
are on the agenda in Kuwait
* Saudi Arabia / UAE are pushing its
Solar program
* PPP for Metro, Car Parks, Ports are
potential developments in Abu
Dhabi
* Similar plans in Egypt to start
whenever possible
* Will Saudi Arabia / UAE
programs for renewable
projects and especially solar
projects starts in 2012 and
release the huge potential
pipeline?
*Rising Sectors -
Renewables, Infrastructure & Social 63

64. * Government, NEED;
* Sovereign guarantees
* Grantors’ refinancing risk share, fully-funded
bids not mandatory
* Co-investment (construction period) or subsidy
* Flexibility in concession period and tariff
definition
* Restructure procurement processes
(downsizing, scope redefinition)
* Lenders, NEED;
* Infrastructure bond market, capital!
* Longer tenors, competitive rates
* Sponsors, NEED;
* Make partnerships with other equity investors
* Contribute to funding gap, increase borrowing!
* Partially underwrite refinancing risk
* Tap into Multilaterals Agencies (MLAs) / ECAs
* Revamping and Revitalizing PPP Model 64

65. * What sources of funding and
funding mix will prevail for MENA
PF in the years to come? – Global
War on Cash!
* What financing structures and
pricing will be in the near future?
* Will Japanese, Korean and
potentially Chinese liquidity
continue playing a greater role in
the MENA PF market?
* Will well-structured projects
supported by quality sponsors
continue attracting high interest of
PF market banks, financial
institutions, ECAs and equity funds?
* Is the PPP model still alive?
* What the Future Holds? 65

66. Loay Ghazaleh – loayg@works.gov.bh;
Advisor – loay.ghz@gmail.com
Undersecretary office 00973-36711547
http://bh.linkedin.com/in/loayghazaleh