Raed Al Rayes, deputy chief executive and general manager of the Arab Petroleum Investments Corporation (APICORP), discusses investments for oil and gas industry projects in the Arab region, including those for smaller oil and gas companies, and those who operate under the Islamic financial certificate, or the sukuk programme. Established in 1975, APICORP is a multilateral bank that fosters the development of the Arab world’s energy industry.
How would you describe the financing needs of large oil and gas companies in Arab countries?
NOCs and other oil and gas companies can be divided into several categories. The first includes NOCs with significant cashflow, such as Aramco, UAE’s Abu Dhabi National Oil Company, Qatar Petroleum and Kuwait Oil Company. Most of their projects are self-financed.
Other NOCs and governmental entities have less cashflow, such as ones in Oman, Egypt and Iraq. We expect that they will accelerate their access to the regional and global debt market to fulfil their challenging financing needs. We have started exploring debt and equity investment opportunities for NOCs that are in more need of cash.
A third category includes the large privately owned companies that are less impacted and do not need leverage. They always have generous investments to maintain their availability of cash. Until now, they have not been significantly impacted by low oil prices, but if prices continue to decline for one or two more years, they may start experiencing difficulties.
How are smaller oil and gas companies receiving financial support?
Small and medium-sized enterprises (SMEs) represent a fourth category, and they normally need large investments. The problem is that they often do not attract the attention from lenders due to limited corporate governance, scale and track record for these institutions to assess.
Given APICORP’s mandate, we are requested to support the development of regional SMEs and SME-led energy projects. However, we have applied a very conservative approach when dealing with this high-risk segment.
In GCC countries with liquidity and no political or economic issues, such as Saudi Arabia, Kuwait, Qatar and the UAE, banks can easily make money by approaching large corporations with advanced banking systems.
Banks give only a small portion of their whole portfolio to SMEs as evaluating a project worth $100 million is just as time consuming as evaluating a project for $1 billion. In Arab countries with more issues, even larger companies find difficulties in receiving financing.
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