Finding comprehensive insurance policies for project finance deals post September 11 has become far more difficult and expensive, but lenders have not shied away from investing in deals in the Middle East, where pricing remains competitive and interest in oil, gas and liquefied natural gas deals is high. However, questions are being raised over what the effect of threat of an Iraqi war would have on deals in the region and whether deals, whose policies are coming up for renewal, would be able to find cover at all.
At the end of November, Moody's Investors Service placed the project debt for Oman LNG and Ras Laffan LNG, two of the most high profile project finance deals in the Middle East, under review for a possible downgrade. In each case the ratings agency said the two key causes for concern were the possibility of war in the region, as well as recent increased terrorism activity. But what the agency queries in both cases is the level of protection provided by their insurance policies.
In the case of the Oman LNG, a project which earlier this year closed another portion of financing, attracting a large group of international and regional banks during syndication, the deal has insurance policies that provide some terrorism cover - according to one source of between $250 million and $400 million - and, as is customary, no cover for war. However, Moody's notes that: "While the rating has always taken into account the risks arising from the geographical location of the...
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