Posted on March 15, 2016

The Qatar Project Conference was hosted by MEED on 15th and 16th March 2016 at St. Regis Hotel, Doha, Qatar. Dr. R. Seetharaman, CEO of Doha Bank spoke on 15th March 2016 on “Financing Qatar’s project market in uncertain times. “

Dr. R. Seetharaman gave insight on Global economies. He said “Even after seven years since the Global financial crisis the sustainable growth is not visible in global economy. Monetary easing had continued since the global financial crisis from US, Eurozone and Japan Central Banks. The Fed had commenced rate hike last December and it needs to be seen whether it will continue with so much volatility in global financial markets this year and uneven US economic recovery. According to IMF recent forecast Global growth projected at 3.4 percent in 2016.

The slowdown and rebalancing of the Chinese economy, lower commodity prices, and strains in some large emerging market economies will continue to weigh on growth. Last week we had seen ECB expanding its monetary easing to 80 billion euros a month from 60 billion euros, and corporate bonds will now be eligible. This week the Bank of Japan (BOJ) maintained its commitment to raise the monetary base by 80 trillion yen annually and left the rate it charges commercial banks on certain reserves at 0.1 percent. The Fed meeting is also happening this week, with chances of rate hike in this meeting being minimal. ”

Dr. R. Seetharaman highlighted about Qatar economy. He said “Qatar’s 2016 growth is expected to be 4.3%. Qatar’s fiscal and external positions to shift to deficits from 2016. However Qatar has built a large net asset position that will help it weather the current lower hydrocarbon price environment. Qatar has budgeted for revenues of 156 billion riyals and expenditures of 202.5 billion riyals in 2016. Health, education and infrastructure accounted for the largest share of the 2016 expenditure. Major infrastructure expenditures amounting to 50.6 billion riyals would include railways, the new Doha port, several large roadways and the expansion of electricity, water and sewage networks. Qatar economy is sustainable in the long term amidst short term challenges. Qatar also has AA’ long-term rating from S&P, with a stable outlook.”

Dr. R. Seetharaman gave insight on Qatar Banking Sector. He said “Qatar Banking Balance sheet growth was more than 10% YTD in Dec 2015 and loan growth was more than 15% YTD. In 2015 the contracting sector growth was more than 23% YTD. The concerns on economy include slowdown in growth, tightening of liquidity, surge in borrowing cost and uncertainty over the determination of cash flows throughout the project cycle

Dr. R. Seetharaman highlighted on key challenges faced in Projects and Contract financing in GCC. He said “The release of payments to contractors beyond the agreed time even against consultant certified invoices. This in turn affects payment to subcontractors and impacts project profitability. Reluctance to assign proceeds or give irrevocable assignment letters to financing banks. Absent this, banks have no certainty on project cash receipts to appropriate for settlements. There may be instances where main contractors have called on performance and advance payment guarantee even where projects have been substantially completed.

Banks are a partner in the projects, in certain instances they are the last to know of any concerns and disputes among the owner and contractor. Despite having an assignment of proceeds, payments are sometimes made directly to subcontractors, without Bank’s previous knowledge and approval. The above challenges have resulted in various disputes such as Variation orders, Extensions / Variations of time, changes in design; resulting in cost escalation, time variation, Bills partially certified, Bills certified and not paid and late collection of payments. Disputes tend to have an adverse effect on project efficiency and timeliness of project completion, with no forum to settle differences which tend to eventually build up to detrimental issues.

Banks would like to have a framework to address project financing/ contract financing challenges to improve their participation in this segment. There is a need for development of GCC Bond Market to bring more investors as an additional source of project financing.  GCC infrastrucre bonds needs to be issued with sovereign guarantee to stimulate project financing. We also need to bring long term investors such as Pension funds, Insurance & Mutual funds in GCC Project market. Project entities can issue bonds during the construction phase, and banks refinance the bonds upon projects getting operational. On the whole Qatar and GCC should develop infrastructure bond market for project finance.”

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