United Arab Emirates Infrastructure Report Q4 2009

The Dubai metro is the first of its kind in the Gulf, and its construction has prompted many neighbouring emirates and states to procure similar multi-billion-dollar urban rail projects, which has created a brand new market for companies involved in railway infrastructure.

On the project finance front, the year-long race to secure long-term financing for the Shuweihat 2 power plant drew to a successful end, just a few weeks before the project’s bridge loan was due to expire. The Shuweihat 2 arrangement for US$2.2bn overtakes the financing for Al Dur IWPP, which was finalised in late July, as the largest IWPP deal secured in the Gulf in 2009. GDF Suez, lead sponsor in both projects, is certainly the one to watch as it cements its standing as the key player in the Gulf’s IWPP market.

This quarter we have revised our forecasts on the basis of new historical data announced by the Central Bank of the UAE, but the overall level of growth remains above consensus. Our forecasts of strong real industry value growth for 2009 are supported by a recent study published by the Kuwait National Bank, which estimates that the UAE is carrying out 45% of all projects in the GCC region.

Of course, Abu Dhabi at the moment dominates, but Dubai also has important projects to showcase, such as the ongoing construction of the Green line of the metro, Al-Maktoum International Airport and the expansion of Dubai Airport. In BMI’s Q409 UAE Infrastructure Report we forecast that industry value real growth for 2009 will be 5.2%, compared with our previous forecast of 6.8%. As such, we forecast that industry value will reach AED74.8bn (US$20.4bn). A similar level of growth is expected for 2010, with value climbing to AED81.6bn (US$22.2bn). In addition, the positive effect of lower raw material prices cannot be overestimated. As raw material prices decline, developers in infrastructure and general construction may become more confident about long-term cost estimates, which in 2008 were constantly being revised as prices of steel and cement reached new heights.

However, we also stress that most of the developments in the infrastructure sector of late have been overwhelmingly government backed. As such, we maintain our assessment that that government-backed infrastructure spending will sustain the construction sector growth at a time when private investments are expected to remain volatile.