Construction of the 15km ‘Route 2020’ project, worth a total of $2.9bn, has already started
Dubai hopes to finalise $2.5 billion in fundraising for the 15km extension of its metro system this year, the chairman and director general of the Roads and Transport Authority (RTA) has said.
Construction has already started on the project, which extends the Dubai Metro Red Line to the Expo 2020 site, Mattar al-Tayer told Reuters.
“I hope [funding will be finalised] before the end of this year as we’ve started construction,” he said during an interview with the newswire, adding that the government had already made an advance payment of $165 million to a consortium of contractors.
The consortium includes France’s Alstom, Spain’s Acciona and Turkey’s Gulermak.
Banking sources told Reuters that Dubai’s Department of Finance, which is in charge of raising funds for the project, has been giving banks feedback on their bids for its financing. The sources declined to confirm whether banks had been mandated for the project as yet.
The Route 2020 project is worth a total of $2.9 billion, and is expected to run up $2.5 billion in debt. Of this amount, $1.5 billion will be backed by export credit agencies (ECAs), while the rest will come from a commercial loan, the sources added.
France’s COFACE and Spain’s CESCE are two of the agencies backing the financing, a source close to the situation has said. The commercial loan has a ten-year tenor, while the ECA-backed financing has a maturity of 18 years, the sources added.
Speaking to Big Project ME in September 2016, the RTA said that it has asked consortia to submit elective finance offers during the tender submission stage.
The finance department will then select the most suitable finance model to achieve the “present and future financial sustainability of the project”.
Sources told Reuters that eight to ten international banks had submitted bids in September. These bids included pricing indications for the financing.
With the borrower being government-linked, the pricing of the facility will be determined by Dubai’s ten-year credit default swaps (CDS), which are at about 210 basis points, according to Thompson Reuters data.
The commercial part of the financing is therefore likely to be priced between 200 and 230 basis points over the London interbank offered rate (Libor), while the ECA-backed financing is expected to be offered at about 150 basis points over Libor, another banking source explained.
AbdulMohsin Ibrahim Younes, CEO of the Rail Agency at the RTA, earlier told Big Project ME that the RTA has put in place governance and assessment principles for the Route 2020 project so as to ensure transparency and to achieve the best results.
These include clear-cut objectives and standards for the technical and financial assessment process during the tendering phase.
“These standards cover several parameters. The assessment process was based on the following: The project construction programme; the integration and linking of the systems with the existing lines of Dubai Metro; the station designs and modern project construction techniques, and finally, the rail technologies and systems that will be introduced to the project,” he explained.
The tender attracted 10 consortia of major firms that specialised in the construction metro systems, Younes added. He pointed out that the bids were assessed through specialist committees, teams and international consultants, with 100 specialists from the RTA and the project consultants involved in the process.
“Five of them had submitted technical and financial proposals, and negotiations were made with two consortia in the final stage. The process concluded with the awarding of the project contract to Expolink Consortium.”