Private equity giant Blackstone announced this week that it was launching Zarou, an energy development company focused on the Middle East and North Africa, hiring a team from UK development institution CDC to run the new project.
Meanwhile, the World Bank and Islamic Development Bank (IsDB) are planning to scale up infrastructure investment in the region, tapping into pools of shariah-compliant funds.
Zarou will focus on thermal and renewable power opportunities as well as oil and gas midstream and water assets in the region. It will primarily target Egypt, Jordan, Morocco, the UAE and other Gulf countries, with an opportunistic approach elsewhere.
The equity funds will come from existing private equity funds (rather than Blackstone’s infrastructure mandate), as with its investment in Fisterra Energy, which develops energy assets in Mexico and Latin America.
The firm has been evaluating the opportunity since 2014, GlobalMarkets understands, and sees attractive power supply and demand dynamics.
Much of the market is now dominated by existing state-owned sponsors and MDB funds, but Zarou thinks its team will still be able to identify opportunities that hit its return targets.
The IsDB, for example, has two private equity funds dedicated to infrastructure in its member states and is now raising a third.
State-owned sponsors are developing some of the largest regional projects — Morocco’s $9bn Ouarzazate thermosolar project, one of the world’s largest, is sponsored by state-controlled Masen, and funded mostly by a consortium of development banks, including EIB, KfW and AfDB.
Jordan’s Baynouna solar PV project is sponsored by an Abu Dhabi state company, and financed by IFC, Dutch development bank FMO and the Opec Fund for International Development, among others.
Zarou, GlobalMarkets understands, will consider MDBs as partners and potential sources of debt finance for its investments.
SHARIAH FOCUS
The World Bank and IsDB are also turning their attention to delivering shariah-compliant infrastructure investment in MENA, and in other IsDB member countries. This will allow projects to attract funding from Islamic-only banks, and direct funds to sponsors with strict Islamic criteria.
Infrastructure and project finance are particularly suitable for issuance in Islamic format, because of the formal prohibition on lending at interest — making money from money. Sukuk are backed by assets and are structured to have a “profit rate” instead of a coupon like a conventional bond.
As infrastructure projects are already backed by real assets producing real cashflows, lending against infrastructure can easily be made shariah-compliant.
Indonesia, as the world’s most populous Muslim nation, is particularly likely to benefit. Speaking in Bali on Wednesday, Indonesian finance minister Sri Mulyani Indrawati heralded an “infrastructure renaissance” which the government was launching, aimed at accelerating investment in the country’s infrastructure.