French lender Societe Generale is working on several large renewable energy financing deals and expects sovereigns to increasingly turn to green bonds as part of their funding mix, a company executive said.
"The UAE is leading the way, Saudi is progressing, Egypt is starting, even Kuwait is a space we are watching," Richad Soundardjee, bank's chief executive for Middle East told The National on Monday on the sidelines of the World Government Summit in Dubai.
“They [the financing deals] are more on the larger side…. benchmark size,” he said of the deals which usually are worth $500m (Dh1.84 billion) or more.
About 70 per cent of the global power financing deals recently executed by Societe Generale, which has totally stopped funding coal-related power generation projects, were in the renewable space. The bank plans to expand its reach within the Middle East region as it looks for more opportunities to finance deals in markets such as Oman. It is funding wind projects in Egypt and is currently working with Abu Dhabi clean energy firm Masdar, which is in a consortium with EDF Renewables that won the tender for Saudi Arabia’s 400-megawatt Dumat Al Jandal wind farm.
Saudi Arabia and the UAE, the two top economies in the six-member GCC, have ambitious plans to significantly increase the portion of renewable energy in their power mix. UAE is leading the way with billions of dollars of spending on mega solar projects. Dubai is set to exceed its target of generating 7 per cent of its energy needs from renewable energy by 2020 and will hit eight per cent next year.
Saudi Arabia, under the National Industrial Development and Logistics Programme, aims to bring 60 gigawatts of capacity online by 2030 by executing 35 renewable projects. It is offering private sector opportunities to invest in projects such as a 3.5bn riyals solar cells and modules plant and a 2.5bn riyals gas turbine manufacturing plant.
Execution of big-ticket projects and a continuous pipeline of deals will be key for the banks, enthusiastic about being part of the renewables growth story in the region, Mr Soundardjee noted.
Sovereigns in the broader region that weren’t even interested in speaking with banks in the past, today have become the largest users of bank financing, bonds and advisory services, Mr Soundardjee noted, adding that access to bond markets is absolutely critical for government, government-related companies and the private sector.
“We have our dollar [deployment] capacity…. we have [bonds and advisory] mandates for this year,” he said. “We also believe soon, issuers including governments will have to diversify away from dollar and the euro market is one of the avenues.”
The other source of diversification is green bonds.
“The market is picking up and a lot of governments from the region are looking at it either for themselves or for government-related entities. I’m hoping we will see some [deals] this year.”
Societe Generale in the past five years has grown rapidly in the region and its exposure to the region in terms of balance sheet has also multiplied, he said.
“It has been a fairly steep, double digit growth. I am hoping that we can maintain that [in 2019 and beyond]. Historically we have been very strong in the UAE and it remains the case, whilst we have a much wider footprint now in the GCC and Egypt,” he noted.
Globally, Societe Generale is shrinking its markets unit and planning fresh cost cuts of $570m after revenue at its fixed-income, currencies and commodities trading business fell 29 per cent in the fourth quarter from a year-earlier period.
Mr Soundardjee, however, said that Middle East operation is "agile" and the region along with the African market is among the few bright spots against the backdrop of global uncertainties of trade wars and slowing economies.