PF Archive

Bridge to the past

19 11 2008

"There is no market at the moment." One banker's statement on the Middle East project finance market, but a view shared by many. The syndication market is closed, and the notion of bank underwriting now exists in an inhospitable legal space between market flex and material adverse change clauses. The stream of bad news has been continuous as the US sub-prime crisis turned global and most of the developed world grapples with recession and more potential damage from the onset of deflation. The Gulf Cooperation Council (GCC) nations were largely insulated from the initial effects of the credit crunch because of the buffer of high oil prices; however that buffer has been dramatically eroded as prices per barrel have fallen from $147 in July to around $55 a barrel late November. The regions' equity markets have taken a pounding, with the Saudi exchange – the worst hit – falling 45% in the last 12 months. Kuwait's Gulf Bank, widely regarded as a conservative lender, suffered a run on its shares and had to be bailed out by government, which led to region-wide adoption of government guarantees for depositors. Immediate outlook Perhaps the two most significant events likely to shape the near-term course of projects in the region is the resolution of the financing of the Shuweihat 2 IWPP and the details of the 2009 Saudi budget. The $2.6 billion project financing of the Suez/ADWEA-sponsored Shuweihat 2 IWPP in Abu Dhabi is the highest profile deal in which banks have triggered a material adverse change clause...