Despite the prospect of huge infrastructure investment in Qatar, there are doubts this will translate into increased business for the trade, project and export finance markets. Sarah Rundell reports.


The level of investment Qatar is set to make in infrastructure projects in the coming years almost defies belief. The tiny country, where liquefied natural gas (LNG) exports have earned it the highest per capital income in the world, plans to spend US$41bn on a railway system, US$11bn on an airport, US$5.5bn on a deepwater port for visiting cruise ships, construct a US$4.5bn causeway to Bahrain, as well as build tens of thousands of new hotel rooms

And given that some figures bandied about put the total spend over US$140bn, this may be just the half of it. Qatar has allocated 40% of its budget between now and 2016 to infrastructure in a drive that began before it won the right to host the World Cup in 2022. Its successful bid added new urgency – US$4bn for nine new stadiums, complete with solar technology to cool players and spectators in the sweltering heat, are now on the list.

“We expect around US$15bn worth of projects through 2012 rising to US$20bn in 2013,” says Dubai-based Bhanu Kumar, vice-president, institutional and international banking at Emirates NBD, the UAE’s biggest bank by assets.

It promises a bonanza for banks and contractors lending to and building the hotels, transport networks, power plants and stadiums that will transform the country into one of the biggest construction sites on earth. It also promises a timely alternative since Qatar put a self-imposed moratorium until 2015 on new hydrocarbon projects to conserve resources. Trade will blossom as Qatar seeks to procure everything from underground trains to construction materials. But for all the scale of its infrastructure ambition, there is a question mark over the extent of opportunities for project and trade finance.

Financing needs

On one hand, foreign banks will be much sought after because of the sheer size of the projects on offer and the need to spread the risk beyond the Gulf. Lender appetite will be strong since Qatar is a safe haven in a volatile region. Any prospect of discontent spreading from Arab Spring countries has been soothed away by allocating up to US$12bn on housing and infrastructure projects, specifically for local people, over the last year.

“You have to put your assets somewhere and it’s a pretty good place,” says Kumar. Global banks already have successful track records lending to finance the oil and gas sector in deals structured between the government and private sector for LNG producers RasGas and Qatargas, and will come in to the country via their banking relationships with global construction groups.

However, another argument suggests that the eurozone crisis will continue to scupper the big banks’ ability to lend to these kinds of mega-projects with the traditional stalwarts still short on dollars.

French banks with Middle East project finance divisions, BNP Paribas, Société Générale and Crédit Agricole, didn’t lend to the recent US$5.4bn Barzan deal, a joint venture between Qatar and Exxon Mobil to produce and process gas from its North Field. Instead, this deal drew on a US$850mn Islamic facility from Qatari and Asian banks including SMBC, Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi.

“There used to be a time when 70% of the world’s cross-border lending was done by European banks, but now this whole dynamic has changed and you can’t rely on the same players,” says Charles Carlson at Standard Chartered in Doha.

There is also the very real possibility that Qatar, with all its own bottomless wealth encapsulated in a sovereign wealth fund that holds between US$85bn and US$100bn will fund its infrastructure needs itself. It has been nearly two years since it won its bid to host the World Cup but little new business has been written.

“It could go either way. If gas prices are at a reasonable level they can do it on their own. So far it doesn’t seem like they are appointing financial advisors and arranging offshore finance for anything,” says one Bahraini-based banker.

Experts also point out that many of Qatar’s new infrastructure projects aren’t traditional project finance deals in as much as they lack the long-term revenue generation which makes lending against future cash flows possible.

Furthermore, Qatar plans to dismantle its redundant stadiums after the tournament and donate them to poorer countries. And doubts over the long-term use of an underground metro in tiny Doha post 2022 have slowed the tender process for the state’s billion dollar railway plans. “There is an aspect of what happens post-2022?” questions Emirates NBD’s Kumar.

Dearth of project finance

As the clock ticks, project finance and its lengthy processes make it a less likely option, particularly against the backdrop of the last minute chaos that surrounded 2006 Asian Games in Doha.

Qatar Railways delayed its first tender to build a Qatar-wide railway network. The tender was due in late 2011, but has been postponed until the third quarter of 2012.

“There isn’t a huge amount of time left; any build-own-operate or build-own-transfer structure takes time to put in place. My guess is they will just finance it themselves,” says a Bahraini-based commentator.

Doha’s new international airport, a US$15bn project with a capacity to handle 50 million passengers and due for completion this year, is another case in point. “They’ve done it all with cash – there has been no project finance,” he says.

Even if project finance opportunities do remain few and far between, Qatar will still need to source most of its construction materials from overseas. It means the big ticket items like rolling stock will need trade finance. “German, Japanese and Korean ECAs will be looking at ways to facilitate their own big companies in Qatari projects,” says Kamran Zaidi, regional head of trade finance and cash management at Deutsche Bank.

However, here again, some critics wonder at the level of ECA-backed tranches. Although ECAs provide cover in the oil and gas sector – most recently in the Barzan deal – suppliers so far are not being asked to do ECA finance, say bankers.

“Tenders will substantially be on the basis of cash payments,” predicts Standard Chartered’s Carlson, who believes that the boost in trade will be keenly felt amongst Qatar’s own local corporates and SMEs. “The government wants to make sure there are wider economic benefits. For example, the import of building supplies will come through local corporates financed by banks based in Qatar, rather than cross-border trade finance from banks based in say London.”

Local bank success

In fact, local banks are set to be the big winners in Qatar’s infrastructure scramble, with analysts expecting that most of the construction will be funded by local bank lending. “International banks will have a role in the biggest projects but local banks will have the biggest slice of the cake; they’re better equipped at understanding the local market and sovereign backing of projects provides the icing on the cake,” says Deutsche’s Zaidi.

In the first six months of 2011 local bank lending to construction companies expanded by 8.4% compared with a contraction of 25% in the same period a year ago, according to data from Qatar National Bank.

“Directly, local banks will participate in financing and providing all ancillary services to the contractors and sub-contractors involved in the projects,” predicts Moody’s Qatar analyst, Elena Panayiotou.

On the retail side, the influx of workers could also boost local banks’ small depositor bases. Qatar’s construction boom is expected to employ more than 20,000 workers during its peak.

Qatar’s banks are also well positioned to offer Islamic finance. Demand for services and products that comply with shariah law is increasing by about 15% a year, according to the Kuala Lumpur-based Islamic Financial Services Board, a global standard-setting body.

Banks can usually operate both Islamic and conventional arms but Qatar recently insisted that lenders must choose between Islamic or conventional banking in a ruling that has forced some international banks to close their shariah-compliant operations in the country.

But local banks do have their own obstacles to overcome. “The major challenges are the high credit risk relating to the banks’ aggressive loan growth to the construction and real estate sector.

During 2011, loans here rose by 49%, whilst total loan growth amounted to 25%,” says Moody’s Panayiotou. For many experts the future for project and trade finance in Qatar for international banks is actually rosier in downstream oil and gas deals.

They’ll be sought after to help finance projects such as petrochemical plants and aluminium and steel operations that create local jobs and bring value onshore. The jury is still out on whether Qatar needs the private sector to complete its grand vision for the future. GTR