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Neom offers financial guarantees to lure private investors

Dr Manar Al Moneef said, 'our job is not only to identify the opportunity, but to make them bankable' Creative Commons/World Economic Forum
Dr Manar Al Moneef said, 'our job is not only to identify the opportunity, but to make them bankable'
  • Variety of partnership models
  • ‘Significant role’ of private sector
  • 5-year 1.2% DCSR key to strategy

Neom is adopting stabilisation guarantees and varied financial arrangements to encourage private sector investments, according to a senior executive.

The $1.5 trillion giga-project, owned by the Public Investment Fund (PIF), is a linchpin in Saudi Arabia’s move away from oil dependency.

Dr Manar Al Moneef, chief investment officer at Neom, said it plans to offer a variety of partnership models including joint ventures and build-operate-transfer agreements across over 150 initiatives in multiple sectors.

The measures come as Saudi Arabia scales back initial targets for the futuristic desert city as part of broader concerns about delays and financial challenges to its Vision 2030 plans.

Neom admitted in March that its horizontal city The Line would open in 2030 at only around 3.2km long, instead of the intended 170km.

“The size and scale of Neom is something that’s not been heard of, and we’re trying to do it in a short period of time,” Al Moneef told a conference in London this week.

“In order for us to achieve that ambition, the private sector will play a significant role.”

Key to Neom’s strategy is a stabilisation guarantee aiming for a Debt Service Coverage Ratio (DSCR) of 1.2 percent over five years, ensuring projects meet their financial targets and become attractive to financiers. 

DSCR is a financial metric used to assess a company’s ability to repay its debt, indicating the project’s financial health and stability.

“Our job is not only to identify the opportunity, but to make them bankable,” Al Moneef said at the UK Saudi Sustainable Infrastructure Summit.

“This guarantee ensures that if a project, say a hotel, meets its occupancy and average daily rate targets, it becomes bankable.

“That means if you go with that structure to any financial institution, you will have no problem in getting the required debt financing.”

The Treyam project includes a 450m bridge featuring the world’s longest infinity pool and a hotel with glass floors

Al Moneef revealed that some of Neom’s schools and healthcare assets have also received financing from the Ministry of Finance’s Infrastructure Fund, which is providing 50 percent of the debt “at a very attractive cost”.

“We have every opportunity for you, at the size that you want and the scale that you want,” she said, addressing potential investors and partners.

“[Whether it’s] $100 million or a billion, everything’s available, at the structure that makes you comfortable as well as the banks.

“We’ll go together to the banks, we’ll talk to them, [and] we’ll make sure what is the most optimal structure for you as well as for us to make sure we can execute this.”

The project structures ready for investment – ranging across energy and water to telecommunications and real estate – are designed to meet international standards and attract substantial banking support, Al Moneef added.

“Today, you don’t need to waste time chasing after the banks,” she said. 

“They’re going to be chasing after you.”

Neom intends Jaumur to be a high-end resort for luxury yacht owners

Earlier this year, a senior executive at Rothschild & Co said banks in Saudi Arabia were being “forced to lend en masse” to support Vision 2030, triggering a liquidity squeeze in the mid-market sector and creating demand for private credit.

Naveen Bhojwani, at Rothschild & Co, said in January that while many of the upcoming projects are backed by the Ministry of Finance or PIF, their structuring has not been “too palatable” for international lenders.

Vision 2030 requires $100 billion of foreign direct investment annually by 2030, but in 2022 the kingdom managed only $33 billion.

Andrew Cunningham, a risk and governance consultant, said in an AGBI column that Saudi Arabia’s Ministry of Finance predicts continued budget deficits due to increased spending on giga-projects and infrastructure development.

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