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Tue 4 Feb 2014 02:03 PM

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Financing seen holding back GCC construction growth

New survey shows growing optimism but also warning about cost of capital for projects

Financing seen holding back GCC construction growth
GCC construction, Middle East construction

Optimism is growing over prospects for the Gulf's construction market but concerns remain regarding financing, according to a new survey.

The survey by international law firm Pinsent Masons said growth could be dampened unless action is taken to address finance concerns.

Pinsent Masons' sixth annual GCC Construction Survey found that 90 percent of companies perceived there to be greater optimism in the market, with 77 percent reporting a healthier order book for the next 12 months relative to the previous year.

However, 96 percent of respondents, which included some of the region's largest contractors and developers, claim that the cost of capital for projects was either as expensive (43 percent) or more expensive (53 percent) than it was in 2012.

Just four percent thought the cost of capital was getting less expensive. The issue of access to finance to fund projects and growth was highlighted as one of the most significant risks tempering the sector's optimism for 2014.

Cash flow was also cited as a concern, with 62 percent of companies complaining of longer payment periods, although this is a reduction from the 78 percent of companies who expressed concern over the issue in the previous year's survey.

Sachin Kerur, head of Gulf Region at Pinsent Masons, said: "The GCC construction sector is clearly very positive about the outlook for the coming year. The broad base recovery in the construction market sets a solid foundation for growth to continue in 2014, but it remains crucial we capitalise on the potential of this sector at this critical juncture.

"A number of major projects on the immediate horizon, such as Expo 2020 and the Qatar World Cup, have added a real sense of momentum.

"However, it is important to address the issues surrounding finance. Companies are reporting that the cost of capital is more expensive, and that accessing finance for projects more generally is a concern.

"They also tell us that their margins are being squeezed due to rising production costs and inflationary pressures."

He said it is likely that the trend of going straight to investors through bond issuance and other forms of financing will grow as various players position themselves for the significant projects likely to be procured.

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