The increase in interest rates by the US federal reserve last week is likely to make borrowing costs for projects and contractors more expensive but is unlikely to derail funding plans for major projects by governments and other clients in the region.
“In terms of raising bonds and the general, day-to-day project finance that contractors have to deal with, I don’t think that an increase of that range makes a huge impact,” said Zander Muego, a partner at the cost consultancy Thomas and Adamson.
“Obviously, if the cost of money gets more expensive then it does impact contractors, and ultimately it impacts the industry.
“There’s obviously a number of factors impacting the industry just now. Certainly, material prices have been moving around, the market is fairly tight as well, so there aren’t huge margins for contractors in the first place.
“But the bigger challenges for contractors is one of cash flow and having sufficient cash to raise bonds rather than small adjustments in the rates,” Mr Muego said.
He said in terms of project finance, the rise in interest rates is only likely to be of note if it becomes part of a wider trend.
“If a project is feasible, then I would suggest that that small adjustment in the rate would not suddenly make that project not feasible. But if that continues, it would have an impact.”
Faithful + Gould’s regional development director, David Clifton, said: “There’s probably going to be another rate rise this year as well, and it’s not the individual ones that are a concern, it’s the compounded effect of them that might cause concern in due course.”
However, he said that liquidity, rather than the cost of finance, was of greater concern for project funding.
“There is liquidity; it just takes time for that to reach the market.”
He also said that as governments move towards alternative financing methods to fund projects, it will be long-term borrowing rates that will be more keenly watched.
“Short-term interest rates probably aren’t going to cause a lot of pain right now,” said Mr Clifton.
Maarten Wolfs, a partner and Middle East infrastructure finance leader at PwC, said any increase in base rates will increase borrowing costs for the industry but, in terms of infrastructure financing, interest rates are only one part of a much more complex set of sums.
“The cost of long-term interest rate hedging and the lenders’ risk premium must also be taken into account. We have seen a number of incremental rate hikes over the last few years. However, it is fair to say we are still in a macro-economic cycle of historically low interest rates.”
He said, in general, higher interest rates “have rarely prevented important infrastructure projects from advancing”.
“And in the case of many projects which are structured as PPPs, interest rate risk is a pass-through to the government or end-user under the offtake contract.”
mfahy@thenational.ae
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Coming 2 America
Directed by: Craig Brewer
Starring: Eddie Murphy, Arsenio Hall, Jermaine Fowler, Leslie Jones
3/5 stars
Grand Slam Los Angeles results
Men:
56kg – Jorge Nakamura
62kg – Joao Gabriel de Sousa
69kg – Gianni Grippo
77kg – Caio Soares
85kg – Manuel Ribamar
94kg – Gustavo Batista
110kg – Erberth Santos
Women:
49kg – Mayssa Bastos
55kg – Nathalie Ribeiro
62kg – Gabrielle McComb
70kg – Thamara Silva
90kg – Gabrieli Pessanha
Ovo's tips to find extra heat
- Open your curtains when it’s sunny
- Keep your oven open after cooking
- Have a cuddle with pets and loved ones to help stay cosy
- Eat ginger but avoid chilli as it makes you sweat
- Put on extra layers
- Do a few star jumps
- Avoid alcohol
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The Sheikh Zayed Future Energy Prize
This year’s winners of the US$4 million Sheikh Zayed Future Energy Prize will be recognised and rewarded in Abu Dhabi on January 15 as part of Abu Dhabi Sustainable Week, which runs in the capital from January 13 to 20.
From solutions to life-changing technologies, the aim is to discover innovative breakthroughs to create a new and sustainable energy future.
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The specs: Volvo XC40
Price: base / as tested: Dh185,000
Engine: 2.0-litre, turbocharged in-line four-cylinder
Gearbox: Eight-speed automatic
Power: 250hp @ 5,500rpm
Torque: 350Nm @ 1,500rpm
Fuel economy, combined: 10.4L / 100km
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The biog
Hometown: Birchgrove, Sydney Australia
Age: 59
Favourite TV series: Outlander Netflix series
Favourite place in the UAE: Sheikh Zayed Grand Mosque / desert / Louvre Abu Dhabi
Favourite book: Father of our Nation: Collected Quotes of Sheikh Zayed bin Sultan Al Nahyan
Thing you will miss most about the UAE: My friends and family, Formula 1, having Friday's off, desert adventures, and Arabic culture and people
FINAL LEADERBOARD
1. Jordan Spieth (USA) 65 69 65 69 - 12-under-par
2. Matt Kuchar (USA) 65 71 66 69 - 9-under
3. Li Haotong (CHN) 69 73 69 63 - 6-under
T4. Rory McIlroy (NIR) 71 68 69 67 - 5-under
T4. Rafael Cabrera-Bello (ESP) 67 73 67 68 - 5-under
T6. Marc Leishman (AUS) 69 76 66 65 - 4-under
T6. Matthew Southgate (ENG) 72 72 67 65 - 4-under
T6. Brooks Koepka (USA) 65 72 68 71 - 4-under
T6. Branden Grace (RSA) 70 74 62 70 - 4-under
T6. Alexander Noren (SWE) 68 72 69 67 - 4-under
UAE currency: the story behind the money in your pockets
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Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
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UAE currency: the story behind the money in your pockets
UAE squad
Esha Oza (captain), Al Maseera Jahangir, Emily Thomas, Heena Hotchandani, Indhuja Nandakumar, Katie Thompson, Lavanya Keny, Mehak Thakur, Michelle Botha, Rinitha Rajith, Samaira Dharnidharka, Siya Gokhale, Sashikala Silva, Suraksha Kotte, Theertha Satish (wicketkeeper) Udeni Kuruppuarachchige, Vaishnave Mahesh.
UAE tour of Zimbabwe
All matches in Bulawayo
Friday, Sept 26 – First ODI
Sunday, Sept 28 – Second ODI
Tuesday, Sept 30 – Third ODI
Thursday, Oct 2 – Fourth ODI
Sunday, Oct 5 – First T20I
Monday, Oct 6 – Second T20I
