Energy project financing in the GCC region: an empirical investigation

Abstract

This paper analyzes the capital structure of energy infrastructure projects in the Gulf Cooperation Council region, where energy projects form the bulk of the deal-making backload. The econometric estimation of 108 energy project finance for the period 2005-2014 valued at 258 bn USD sheds the light on the success factors for such projects in the region, confirming the relevant relationships among project size, owner concentration and debt duration. The analysis illustrates the roles that debt, equity, interest rate, and the economic crisis play in the financial structuring of infrastructure projects in rapidly growing emerging markets. First, it confirms that longer debt duration is correlated with higher debt ratio. Second, it shows that larger project size is correlated with lower debt ownership concentration. Third, the financial crisis had a different effect on debt ratio and debt duration. Fourth, project size and interest rate are negatively correlated, although regional specific patterns would emerge when comparing the effects of the 2008 financial crisis on interest rates. These findings have several multilevel implications for regulators, debt issuers and investors. For regulators, findings amplify the way in which to improve debt issuance in GCC countries. For issuers, findings suggest that they should be more concerned about the bonds' security and seniority as the firm-specific characteristics, such as size and debt and equity concentration of finance project, affect the capital structure. For investors, the study offers an analytical framework to investigate bonds' structure before investing.

Trends of Project Finance in the World Market and in Arab Countries

“…Furthermore, GCC economies usually have specific tax legislations that can influence on the capital structure of large investment projects. Except Oman, the GCC countries did not historically levy sizable corporate tax on locally owned domestic companies [25].…”

Trends of Project Finance in the World Market and in Arab Countries

“…Then, the market stayed almost stable with less than 10% of the global market share until 2004, when the project finance loan market increased by 134% compared to 2003 and jumped to $ 18. 25 Fig. 3 lists the total volume of project finance for each Arabic country from 1995 to 2018.…”