New joint venture plans to invest up to $1bln in Gulf infra projects

Investcorp and Aberdeen Standard Investments plan to take equity stakes of between $40-60mln in roads, rail, housing, healthcare and other schemes

  
Image used for illustrative purpose. A vehicle drives past the King Abdullah Financial District in Riyadh, Saudi Arabia, October 18, 2017.

Image used for illustrative purpose. A vehicle drives past the King Abdullah Financial District in Riyadh, Saudi Arabia, October 18, 2017.

REUTERS/Faisal Al Nasser

A new joint venture set up to invest in Gulf infrastructure projects is expecting to deploy between $800 million and $1 billion worth of capital in the next five-to-ten years.

Bahrain-based alternative investment manager Investcorp and UK-based asset management firm Aberdeen Standard Investments announced the launch of a joint venture to invest in infrastructure projects across the Gulf Cooperation Council (GCC) in a press statement on Wednesday, with Investcorp's co-chief executive Hazem Ben-Gacem stating that the region has “a healthy pipeline of infrastructure projects and deals in the GCC, which means there is a potential to generate real value for those types of investment”.

The new joint venture will target both greenfield and brownfield investments in a range of soft and hard infrastructure assets including road and rail, smart cities, social housing, education and healthcare facilities, according to the statement.

In an emailed response to queries from Zawya, Ben-Gacem said investments would be made through a specialist vehicle, which will be a 50/50 partnership that will be “the active manager of a fund or a series of funds”.

It will seek investments “characterised by stable, predictable and long-term cash flow with attractive, risk-adjusted returns”, Ben-Gacem said, with typical equity stakes ranging between $40 million and $60 million.

The infrastructure sector in the Gulf has endured a tough few years following the downturn in oil prices which took place in 2015.

Government bodies in Saudi Arabia, which is the GCC's biggest market, halted payments to contractors and placed many huge projects on hold as it began a reassessment of spending ahead of producing its Vision 2030 strategy in 2016 and the establishment of a series of new Project Management Offices in the Kingdom, overseen by a new national project management office known as Mashroat.

The effect of this was that cash flow dried up for many contractors, with Saudi Oger eventually going out of business and the Kingdom's biggest contractor, Saudi Binladin Group, eventually being placed under state ownership, according to Reuters.

Earlier this week, the Kingdom's only active listed contractor, Abdullah Abdul Mohsin Al Khodari Sons Company, said in a statement in Arabic on the Saudi stock exchange's website that as a result of difficult trading conditions in recent years, its cumulative losses have now reached more than 1.1 billion Saudi riyals ($293 million), or 198.52 percent of its capital.

However, there remain plenty of opportunities for investment, with the pipeline of active projects within the six GCC countries currently standing at more than $3.1 trillion, according to Thomson Reuters Projects data.

"If there ever was a time to invest… it would be now," Ben-Gacem said in the emailed response.

"We are seeing abundant deal flow driven by ambitious socio-economic long-term vision plans adopted by each of the Gulf countries, requiring substantial infrastructure investments.

More recently, Saudi Arabia announced that it is seeking to attract nearly $430 billion in private sector investment over the next 10 years for a landmark infrastructure and industrial program, as part of its economic diversification campaign.

"The Kingdom is expected to spend $1.1 trillion over the next 20 years on infrastructure projects. We want to be a key contributor to those plans and other such plans from other members of the GCC," Ben-Gacem said.

(Reporting by Michael Fahy; Editing by Anoop Menon)

(michael.fahy@refinitiv.com)

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