Following the formation of the Kuwait Authority Project Partnership (KAPP) in 2014, Al Ahli Bank of Kuwait proactively set up a dedicated unit for structured and corporate finance to support clients who were going to successfully bid for prestigious projects.
Tom Lind, the senior executive officer of Al Ahli Bank of Kuwait, told International Finance, “Our structured finance specialists were able to work seamlessly across sponsors, KAPP and international banks in finding optimal solutions for long-term infrastructure projects. We have reinforced our experience, capabilities and investment in industry specialisations, particularly in the field of energy, water, waste-management and telecom. Since the bidding process often involves a long-term engagement between us, sponsors and their advisors—patience and commitment is key to be able to execute structured finance deals for these projects.”
Over the years, the bank’s structured finance team has become well-versed in KAPP’s bid requirements and industry norms for infrastructure financing. “We also need to manage contradicting objectives between different parties at certain stages of the project, but we have consistently aligned our objectives with the sponsors to bid at the lowest tariff and retained a flexible structure,” Lind explained. “On the other hand, we keep an eye on risk allocations, robustness of the financial model and develop preparedness for currency risks, inflation or price fluctuations and the implications of a termination.”
As a result, the bank’s track-record has grown from a high quality record of a few team members to an institutional track record including large flagship projects. These projects comprise KAPP’s Umm Al Hayman WasteWater Project, KABD Waste to Energy Project, and more recently, the PAHW’s projects for the Jaber Al Ahmad Residential and Economic Zones, where the bank supported bids that are currently under construction.
Leading the way with remarkable work
“Having mastered a full circle transaction in the Umm al Hayman project, which achieved full financial close in June this year, we have emerged as the bank of choice for sponsors who are planning to bid for the upcoming KAPP and PAHW projects,” Lind explained. “We also have been a lead arranger on a number of prime syndications in Kuwait and the UAE, which have seen participation from top international and regional banks. With our wholly-owned CMA regulated entity ACIC, we have been involved in advising and arranging bond issues for prime Kuwaiti issuers. By doing so, we have up-tiered our relationships with prime Kuwaiti and regional players from being a commercial banking partner to a strategic partner.”
On the growth front, the bank has demonstrated strong performance largely attributed to its unrelenting focus on structured finance management. Its current structured finance products in Kuwait range from advising and arranging loan market products to capital market issues, which are enhanced by the industry and deep knowledge in Kuwait-specific project finance.
A strategic decision that was made to acquire top international and regional talent in an effort to reinforce the bank’s structured finance unit has enabled it to further expand and become highly specialised over the last five years. To begin, “We have a very solid team, in addition to Yasmine Salamah and I. Yasmine Salamah who is head of the Kuwait Structured Finance team has built out a bank-wide platform to provide structured finance and corporate finance solutions,” Lind said. The profound work of the team has changed the mindset of the bank and new positioning towards larger corporate clients, who appreciated a separate transaction focus corresponding with their strategic initiatives, while maintaining their day-to-day banking with their existing relationship leads at Al Ahli Bank of Kuwait’s corporate banking unit.
“We have also ensured that credit assessments and risk allocations were well considered when approaching our in-house committees. This cross-functional seamlessness and team-based approach worked extremely well to develop tailor-made solutions, enabling our clients to meet their financing objectives,” Lind added.
Showing resilience despite Covid-19
It is a known fact that Kuwait has been a resilient economy within the region and “has proved itself to be well prepared” from financial allocation and risk management points of view. This has been one of the key highlights in terms of macroeconomic factors. The nation’s economic plan was ambitious and has highlighted numerous projects. While not all goals have been achieved, it is important to note the nation’s progress over the years.
Although the Covid-19 period has been challenging, “I would commend the KAPP, MEW and other ministries that have been very forthcoming in delivering the required documentation to come to a financial close despite the prolonged break during the peak of the crisis,” he said. “The time table for launching of new projects have certainly been affected, but since the projects are critical for Kuwait’s economic development, we are sure new tenders for IWPP and other infrastructure transactions will commence soon.”
According to Lind, the KAPP and the MEW have maintained unrelenting focus on their visions and met objectives during negotiations of the Umm Al Hayman project and for signing the PPP contracts on time. “In doing so, they have set the blueprint for the KAPP projects together with banking institutions such as Al Ahli Bank of Kuwait, and this will help a great deal in infrastructure financing schemes going forward.”
Denomination of lending facilities remains a challenge
Lind pointed out that the bank’s main challenge is to do with the denomination of lending facilities. It appears that for such projects, the calculation currency is often in USD and foreign banks provide financing in USD because the interest rate can be hedged for the duration of loans, often up to 25 years or so. “We are a local bank, and we prefer to provide KWD denominated tranches, [with it] being our home currency. However, there is no equivalent hedging solution for the long-term interest exposure. While interim solutions are being thought through, it would help if the commercial banks in cooperation with the Central Bank of Kuwait are able to find a workable solution for this,” he added.
Additionally, the long lead time for projects is a challenge, especially while considering allocation of resources. The bidding consortiums have to understand that the advice and dedication during the bidding process occupies resources that only get rewarded once projects are executed.
So upon being declared as preferred bidders, Lind said “We look for a mechanism in which both sponsors and ourselves benefit from execution works ahead of signing. This has proven to be a good approach for all parties.” He further explained that in the KAPP projects, there are a few legal points that require careful risk allocation between the sponsor and the bank. “We believe our solutions can be used as a blueprint for future projects, as we have managed to find an acceptable commercial balance between the risks at stake and the intention of the various parties, including sponsors, government and financiers.”
What’s next for Al Ahli Bank of Kuwait?
Al Ahli Bank of Kuwait aims to continue supporting its clients in achieving their strategic objectives. This could be in the form of supporting them in their corporate financings, capital market issues, or even if they seek to bid for non-recourse projects. In both areas, “we will continue to provide customised solutions and stay committed to the propositions we believe are beneficial for both clients and us,” Lind said.
The bank’s core markets in the recent period still remain Kuwait, the UAE and Egypt. But having established itself as a lead arranger in Kuwait and the UAE, the bank aspires to do the same in the Egyptian market. Two years ago, the bank opened a branch office at DIFC in Dubai, which is enabling it to cater to an offshore banking platform in support of its roll out in the rest of the region.
“We have seen the benefits of this already as we have led numerous regional transactions and also used it to book loans for prime Egyptian counterparts,” Lind said. The next logical step for the bank would be to become a lead arranger for transactions originating from Egypt, which is something that it is committed to achieving in the near term, given the successful growth and impact of the team operating in its Egyptian subsidiary. As always, “our expansion approach remains on opportunistically mapping market conditions to assess the suitability to our business model. We will continue this approach as we believe that this is what helps us to deliver the best value to our clients,” he concluded.