Wednesday, Jun 13, 2012
--RBS says project bond issuance top of its strategic agenda in the Middle East
--Basel III requirements mean more creative financing methods sought
--RBS has between 5 and 10 mandates for second half of year, some of which are project bonds
By Nicolas Parasie
Of ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Royal Bank of Scotland (RBS.LN) is hoping to cash in on a forecast surge in Middle East project bond issuance, as governments and corporates become increasingly more creative in financing large infrastructure works, an executive at the U.K.-based lender said.
"Project bonds are really top of our strategic agenda as average spending on infrastructure projects is likely to average $15 billion to $20 billion a year in the region," Jacco Keijzer, head of debt capital markets for the Middle East and Africa at RBS, said in a recent interview.
"It is likely to drive future growth for our business here," he said. RBS in the Middle East sold its retail business and it's in the process of winding down its mergers and acquisitions, leaving debt advisory as one of its core activities.
Until recently, most funding for large-scale infrastructure projects was raised through syndicated bank loans. European lenders, however, have been retreating as they cope with the eurozone crisis as well as more stringent capital rules under Basel III, which has pushed up the cost of funding.
Borrowers are therefore keen to diversify away from traditional loans into other modes of funding, such as public-private partnerships and project bonds. Under this type of funding, bonds are sold to investors, usually with 10-to-15-year tenors, to finance a project and the revenues generated will be used to repay the interest and principal.
Governments in the region are pouring billions of petro-dollars into infrastructure projects in the utilities and energy sector. Spending needs in the Middle East region could amount to $300 billion by 2030, requiring annual spending of up to $20 billion, according to figures from RBS.
"The size of the market that relies on loans will come down because of the new Basel III requirements hitting banks. More creative financing such as project bonds will increase," Keijzer said. RBS has between 5 and 10 mandates for the second half of this year, some of which are project bonds, he added.
Recent examples of project bonds in the region include the $2.23 billion Ras Laffan bond issuance and Dolphin Energy's $1.25 billion project bond issuance.
Any bond activity in the region, however, could be derailed by a further deterioration of the eurozone troubles where Spain's banks were recently bailed out and a Greek exit out of the euro remains a possibility.
"If the global economy falters there is much more pain in the pipeline," Keijzer said. In the case of a eurozone collapse, investors would eschew any type of risk, including that of emerging markets, and a global slowdown would dampen any investment appetite despite the region holding little direct exposure to Europe, he added.
Still, if oil prices remain high, governments will be able to continue spending, while issuers' motivations to tap the bond market remain intact.
"Clearly a lot of them (issuers) have needs coming up in the next 12 to 24 months. Some have refinancing issues or targets, others are expansion driven," Keijzer said.
-By Nicolas Parasie, Dow Jones Newswires, +9714 446 1681, nicolas.parasie@dowjones.com; Twitter: @ZDJnews
Copyright (c) 2012 Dow Jones & Co.
(END) Dow Jones Newswires
13-06-12 0603GMT
