DUBAI: Gulf governments are stepping up infrastructure deals with foreign investors, with Kuwait planning to start selling stakes in its oil pipeline network as early as February in a deal that could raise up to $7 billion, three sources familiar with the matter said.
The changes come as oil prices, which have fallen more than 25% in two years, are below the level needed to finance Gulf diversification plans. Governments are now offering investors access to once-off-limits assets, from pipelines to power plants, in a bid to woo pension funds, private equity firms and infrastructure experts.
“The national transformation plans underway in the Gulf are bold and ambitious, and they cannot all be funded from within,” said Bader Moussa al-Saif, assistant professor of history at Kuwait University and associate fellow at Chatham House, UK Policy Research Institute.
“Attracting international markets is multi-directional and multi-dimensional, coming from all parts of the Gulf region and using all means at hand to finance it.” Regarding the Kuwait deal, Kuwait Petroleum Corporation has hired HSBC as an advisor, along with JPMorgan and Centerview Partners, the people said. HSBC is also arranging so-called “staple financing” that buyers can use to back their purchases, and advisers have begun approaching investors, three people familiar with the matter said.
Saudi Aramco is also preparing to sell some gas-fired power plants in the coming weeks in a deal that could raise about $4 billion, two people familiar with the matter said.
Centerview Partners, JPMorgan and Aramco declined to comment. KPC and HSBC did not respond to requests for comment.
More deals are planned
Rajesh Singhi, global co-head of M&A advisory at Standard Chartered, said the region could see billions of dollars worth of additional infrastructure deals over the next 12 months.
“We could see a new wave of deals as additional assets are prepared for the market,” Singhi said. The bank advised Abu Dhabi on its 3.8 billion dirham ($1.03 billion) sale of Pal Cooling Holding last year and is preparing to sell more district cooling assets, Singhi said.
The entry of professional investors has led to more sophisticated deal structures and new sources of capital, such as pension funds and insurance companies, not traditionally seen in the region, Singhi said.
Western funds look to the East
Quebec’s Savings Bank, Canada’s second-largest pension fund with $290 billion in assets, is looking to invest in new Gulf infrastructure beyond its stake in Dubai port operator DP World, infrastructure director Rana Karadsheh Haddad said.
“Our focus now is to identify the right partner who shares our long-term outlook and asset management approach,” Karashehaddad told Reuters. An increasing number of investors are setting up shop locally. Australia’s Macquarie Group is looking for a Saudi base, and America’s BlackRock opened an office in Kuwait last year. BlackRock Global Infrastructure Partners last year led an $11 billion deal for Aramco’s midstream assets related to the Jafra gas project, potentially the largest shale development outside the United States.
In addition to selling gas-fired power plants, Aramco may also sell other assets such as housing, pipelines and port infrastructure, sources said.
Pipeline is back attractive
For state-owned companies in the Gulf, a share sale would allow them to maintain control while freeing up funds for expansion and high-growth projects. The state-run oil company is pursuing the deals in part to diversify its funding sources and attract long-term institutional investors, despite having access to cheaper debt, sources and analysts said.
In a typical Gulf pipeline deal, investors become minority owners in ring-fenced companies and are paid long-term lease payments. The deals would deliver returns of about 12% to 14%, provide exposure to investment-grade issuers and stable dollar-linked cash flows, two people familiar with the matter said.
The Kuwait deal is expected to follow a model used across the region, with the government retaining majority ownership and day-to-day control, three sources said.
The deal typically consists of the U.S. Treasury yield plus the issuer’s credit spread plus a trading premium, people familiar with the matter said.
This model also created a secondary market. In April 2024, BlackRock and KKR sold a 40% stake in the ADNOC oil pipeline to Abu Dhabi-based Lunate, and less than a year later, KKR returned to investing in ADNOC’s gas assets.
“What’s so attractive is the nature of the economic return, a sustainable, near-guaranteed source of income in a world where it’s hard to find,” said Ben Powell, chief Asia Pacific and Middle East strategist at BlackRock Investment Institute.
(Reporting by Hadeel Al Sayegh and Yousef Saba in Dubai; Additional reporting by Federico Maccioni in Dubai and Ahmed Hagagy in Kuwait; Editing by Elaine Hardcastle)
