DOHA: The GCC construction market is facing downward pressure from cuts in government spending, increased overseas competition and staffing challenges. As a result, the market is being forced to reinvent itself, especially in areas such as financing projects where public private partnerships (PPP) have seen increasingly broader support. Lack of liquidity is the biggest issue facing the GCC construction industry, market intelligence publication MEED noted yesterday quoting experts.

“There is a huge opportunity for both private and contract financing to step in. There has been a massive asset depletion in the GCC on account of the drop in oil prices,” Mashreq Bank’s Executive Vice President and Group Head of International Banking, John Iossifidis.

According to Iossifidis, the GCC has to re-finance $94bln of debt over the next two years of which $52bn is bonds and $42bn is syndicated loans, the large concentration of which is in the UAE and Qatar. Much of this will be re-financed through issuance of Sovereign paper. This compounded with tightening regional liquidity, recent downgrades and rising rates presents a perfect opportunity for both private funding and contract financing to cherry pick quality assets to align the risk-reward ratio in a smart manner.

“This does not necessarily mean that all deals on hand are “fundable” but certainly begs the question of re-insuring the risk through other agencies where the risk-reward ratio is skewed. This “buying of protection” will create more opportunities as there will be a clear distinction for banks to be at the debt level and the others at an equity level. This is a key metric that need to followed in a disciplined manner.”

Though there has been a spate of bad news from all across the region ranging from jobs cuts to delayed payments, among others; there is still some glimmer of hope. Oil prices have risen 80 per cent since January. World demand is growing. Crude could be about $60 a barrel in 2018. By that point, value added tax (VAT) will have been imposed in the six-country GCC market, adding at least $20bn to government incomes across the Gulf. National oil company restructurings will be complete and trade with Iran should have recovered. The UAE will be looking forward to Dubai’s Expo 2020. In the meantime, the market will be tougher for everyone. It is going to be a long, slow summer for the GCC. But for those with the capacity to wait, 2018 is the year it will start getting better. “A lack of liquidity is the biggest issue facing the GCC construction industry today,” said MEED editorial director Richard Thompson.

Construction industry leaders from across the GCC will seek to identify strategies for tackling the changes taking place in the region as a result of the fall in oil prices at the influential MEED Construction Leadership Summit (MCLS) in Dubai.

The conference, scheduled on 25 May at the Conrad Hotel, will put the spotlight on markets that offer the strongest growth opportunities for GCC construction companies as well as assessing new ways of delivering projects at a time when governments are reviewing their spending plans.

The central theme of this year’s MCLS will be identifying new and alternative ways to finance projects. In particular, the event will look at the opportunity of governments and private investors coming together to deliver key projects using public private partnerships (PPP).

Addressing the impact of low oil prices on bank liquidity for projects within the region and how businesses should look at financing their projects in this new economic era, Mashreq Bank’s Iossifidis along with Frank Beckers, NBAD’s Managing Director, Head of Project Finance Advisory for Global Banking and Steve Perry, Global Head of Debt Markets and Syndications for First Gulf Bank’s Wholesale Banking Group will discuss on the reality of the banks’ liquidity situation.

The Peninsula