Appetite for infra boosts EMEA project finance

Capital market issuance is soaring in the region, according to a new S&P report, thanks to investors’ increased appetite for infra and tighter bank regulations.

Project finance in Europe, the Middle East, and Africa (EMEA) is making a comeback for the first time since its 2007 peak, driven by investors’ renewed appetite for infrastructure assets but also due to tighter banking regulations that are squeezing out bank lending, ratings agency Standard & Poor’s says in a new report.

“The report highlights how new transaction structures have been adopted now that tighter regulation in EMEA is curtailing traditional bank financing,” S&P said in a statement.

“When project finance capital market issuance last peaked, in 2007, UK project finance companies were almost totally reliant on monoline guaranteed debt, and there was little issuance outside of the UK,” S&P credit analyst James Hoskins said. “The only alternative to monoline guaranteed debt was secured bank lending.”

The ratings agency expressed optimism that these new methods of funding will result in a “more buoyant period for the industry” and stable creditworthiness.

An indication that investors are returning to infrastructure assets, according to S&P, is that since May the agency has assigned a number of preliminary ratings to new projects that have construction risk – the first such bonds to be issued in EMEA since 2007.

In the Middle East specifically, S&P expects the focus to be on social infrastructure, such as schools and hospitals.

In a previous report, released on October 30, S&P forecast an uptick in project finance in the Gulf Cooperation Council (GCC) countries, citing the successful issue of $825 million in project bonds in August this year by Ruwais Power to help refinance a power and water plant in Abu Dhabi.

In the case of the GCC countries, that report also cited a stricter bank regulatory environment as the reason project bond activity is expected to rise.