Private financing in construction
Market participants are seeking out new funding models to support their ambitious development plans.
The massive sweep of major construction projects underway in Dubai promises to transform the emirate’s infrastructure and built environment.
But projects like the new $35bn Al-Maktoum International airport and the $22bn gravity sewer programme are not cheap. Even smaller projects, such as the Roads & Transport Authority’s $4.3bn 2024-27 Main Roads Development Plan, require considerable capital expenditure.
Much of this funding burden will fall on the traditional local banking community. Construction remains a capital-intensive sector that has historically been one of the largest borrowing recipients. UAE banks’ exposure to the real estate and construction sector stood at 14.8% in Q3 of 2024.
This is just as well. Dubai’s 2025 budget envisages a 9% increase in government spending, with an extra $1.6bn for construction and infrastructure compared to the approved budget for 2024.
Of the $23.5bn of planned spending in Dubai, almost half ($10.6bn) will be allocated for construction and infrastructure schemes, including roads, tunnels, bridges, transport, sewerage, parks, renewable energy facilities and the rainwater drainage network development plan.
The ramp-up in spending could stretch financing commitments to the limit, however, with many local banks hitting their exposure limits to the sector. Thus, the need to tap into external and alternative funding sources is growing ever more urgent.
Experts warn that this is not a straightforward process. “Banks need to conduct thorough due diligence to ensure repayments are sustainable throughout the entire course of the project,” Scott Keaney, director and head of project management at real estate consultant CBRE, told the Mashreq MEED Construction Business Leaders Forum in early December.
New financing models
In a market segment that some international banks view as inherently risky, project clients are exploring other funding options, such as debt capital markets (DCMs).
Katralnada Binghatti, CEO of Binghatti Holding, said the company faces challenges when it comes to financing projects, given its USP of rapid execution.
“Some of our projects have been completed in as little as eight months,” she said.
“This efficiency drove us to establish Binghatti Capital, moving beyond traditional bank loans and tapping into DCMs to diversify our financing strategies.”
In early 2024, the Dubai real estate developer launched a debut $300m three-year sukuk, which secured widespread demand from both regional and international investors, with the order book peaking at $621m.
Private financing models are being rolled out across Dubai. International credit firms are starting to enter the market, opening up alternative financing methods.
Private credit refers to capital typically provided by non-bank financial institutions, including private credit funds and private equity. The asset class can include instruments such as floating-rate direct lending, real estate loans and infrastructure debt.
While private debt may be more expensive than traditional commercial credit extended by banks, borrowers like the more flexible and tailored packages, as well as the better risk alignment between borrower and lender.
Binghatti Capital has its own private credit fund, which directly addresses the speed of execution challenge – an important consideration for the company.
“We like availing bank financing when appropriate, but the challenge with banks is that some of them have reached their exposure limits with real estate. Moreover, with some banks you can get stuck in the credit committee for a month before you get approval,” said Binghatti.
For a business model like Binghatti’s, where speed-centricity is key, private credit retains a strong appeal.
The company has developed a financing instrument targeted at its subcontractors. “The private credit fund enables our subcontractors to work faster,” said Binghatti.
“As a developer and main contractor, speed is crucial, and this fund helps secure swift financing.”
PPP prospects
The entry of DCMs and private credit to Dubai’s construction sector is only part of the story. The emirate is also opening up to a broader array of financing approaches. One of these is the private financing of public assets, typically through public-private partnerships (PPPs).
“One area where the maturity has not progressed as fast as expected is in the private finance of public assets,” said Chris Seymour, managing director of the Middle East and Africa at engineering firm Mace. “There needs to be more of a push on that side.”
That message is getting through. Last year, some landmark decisions were made that will create momentum in Dubai’s PPP pipeline.
Dubai now has a $10.9bn portfolio of government projects that can be financed, implemented and operated according to the PPP model. Over the three years covering 2024-26, the Dubai PPP projects portfolio will cover 10 economic sectors.
For example, Dubai Municipality’s Tasreef programme, the emirate’s planned $8.2bn rainwater drainage network project, is being planned as a PPP. It is separate from the $22bn Dubai Strategic Sewage Tunnels project, which is also being developed under a PPP contracting model.
“The PPP approach is well practiced around the power and water sectors,” said Seymour. “The market understands it, and funders understand it. The question until now has been how to get deals beyond those sectors done as PPPs.”
The emergence of PPP schemes like the rainwater drainage network suggests that the challenge is being answered.
Given that UAE financial institutions are flush with liquidity, thanks in part to the surfeit of deposits into the system over recent years, the actual availability of financing should not present a major challenge for construction sector players.
And with an exciting array of new providers and funding methodologies to choose from, from traditional bank financing to private credit, construction sector financing in Dubai looks to be in a positive shape to meet future challenges.
