GCC Project Bonds: Opportunities in the Post-War Infrastructure Buildout

The Evolution and Expansion of Project Bonds

Project bonds gained momentum in 2005 when RasGas issued bonds to finance the construction of LNG trains in Qatar. A year later, Nakilat expanded its LNG carrier fleet using bonds that were secured against vessels and supported by long-term charter agreements, proving steady, contracted cash flows could be sold to bond investors.

The first lease and leaseback model arrived in 2019, in a bank loan deal for ADNOC’s crude oil pipelines. During the following year, separate transactions followed for an ADNOC gas pipeline. Saudi Arabia followed suit by monetizing its oil pipelines through EIG Pearl, its gas pipelines through GreenSaif, and its Jafurah Gas Field assets through Green Palm.

ADNOC then pushed the idea further. Rather than ring-fencing assets, it channeled its borrowing through one vehicle, ADNOC Murban, handing bondholders seniority within its cash flow waterfall, a structural sweetener that contributed to strong demand. The GCC has also utilized the centralized entity to fund the transition to a lower-carbon future.

Exhibit 1

Cumulative Amount of Project Bonds Issued Has Grown

Revenue Requirements

The structure of an asset’s cash flow determines its suitability for a project bond. Project bonds require revenues that are fixed, long dated, and highly predictable. The strongest structures will insulate investors from swings in volume, price, operating performance, and even force majeure. Similar to other infrastructure exposures, investors could use project bonds with these structural protections to access reliable cash flows, backed by assets with relatively low obsolescence. Pipeline issuers currently provide the strongest investor protections, because the end user — known as the offtaker, usually a national oil company such as Saudi Aramco — provides a minimum volume commitment and makes quarterly payments regardless of throughput, operational status, or disruption. The offtaker also bears all operating and capital costs. Debt is sized against those contracted payments so that interest can be serviced comfortably and equity investors can also receive a stable stream of dividends. The bondholder, in effect, is taking Aramco credit risk through an SPV issuer. The same principle structures apply to other project bonds, but they may differ slightly in the type of risk assumed by investors.

What to Expect

Almost all Gulf nations suffered infrastructure damage during the war. Monetizing key assets will allow governments to cushion the heavy cost of reconstruction on their fiscal health. So far, Kuwait has signaled interest in monetizing its own pipeline network while many GCC nations have announced investments to bypass the Strait of Hormuz. Abu Dhabi is fast-tracking a second pipeline to Fujairah to expand export capacity, while Saudi Arabia may further boost the capacity of its existing East-West line to the Red Sea. The same diversification runs beyond hydrocarbons, with Abu Dhabi widening the Etihad Rail network into a cross-border Gulf railway for logistical purposes. Qatar, for its part, must rebuild the LNG liquefaction capacity damaged in the conflict.  

Exhibit 2

A Breakdown of Project Bonds Issued by Country and Sector ($, in millions)

Sector Valuations

There are three main considerations that drive pricing in GCC project bonds:

1. the strength of the contractual protections; 
2. asset quality and strategic importance; and 
3. the technical backdrop.

Pipeline structures sit at the tighter end of the credit spread spectrum because they offer the most investor protections. They currently provide a pickup of 30-40 bps over corporate spreads of the relevant offtaker, or +100-130 over Treasuries, for a yield of around 6.1-6.4%.¹ During the war, this spread relationship held on, as the market took comfort from the bonds’ force majeure protections and the expectation that debt service would continue even if the underlying assets were damaged.

Project-financing bonds generally trade a touch wider, typically around 40-50 bps² over their offtaker, in a reflection of single-asset risk and limited protection in the case of force majeure. That risk became more visible during the Iran war, as missile debris and attacks on key infrastructure forced investors to reassess the resilience of concentrated assets. At the height of the conflict, this drove IWPP names to as much as 100 bps over their offtaker, showing the vulnerability of single-asset issuers. Nakilat recently traded +120 over Treasuries with a yield of 5.5%. Prior to the conflict, these traded with a spread of +80 over Treasuries. IWPPs, which traded +80 over Treasuries before the war, now trade at +130 over Treasuries (5.6%).³

Expected bond supply has been a meaningful technical driver, pushing spread relationships as much as 20-25 bps wider depending on the scale of the issuance. When national oil companies monetize their assets, the size of the bridging loans can be as large as $10-13 billion.⁴ Usually, a large portion of these bridging loans will be refinanced in the bond market, meaning potentially multiple bond issuances.

Conclusion

For credit investors seeking exposure to secured assets, GCC project bonds offer investment-grade credit risk, a spread pickup to the respective sovereign, and long-duration cash-flow visibility insulated from commodity and volume risk. Furthermore, bondholders are generally senior in the structural hierarchy. With the region facing a heavy cost of reconstruction, the asset class may become one of the faster-growing corners of emerging-market fixed income and potentially could serve as a contributor to alpha generation going forward.