Infrastructure funds shrug off subprime

By Dayan Candappa

MANAMA (Reuters) - Funding for infrastructure projects has scarcely been affected by the global credit crunch, which has dried up the flow of cash into everything from takeovers to bonds, two Islamic investment banks said.

The two banks, Bahrain-based Arcapita and Ithmaar Bank ITHMR.BH, said on Tuesday they were eyeing as much as $14 billion in infrastructure projects to be funded through private equity investments.

Both delayed plans to sell Islamic bonds last year and said credit markets had not yet recovered sufficiently to allow the sales to proceed. But both were confident of financing the infrastructure deals.

"I don't see any shortage of credit available to support those kind of investments," Michael Lee, chief executive officer of Ithmaar, told the Reuters Islamic Finance Summit in Manama.

"It is not the same kind, it is completely different. It is sort of prime lending; it is not high risk."

The credit crisis, triggered by defaults on U.S. subprime or high-risk mortgages, forced private equity firms to cancel or scale back acquisitions that are typically 70 percent financed through borrowing.

"In the infrastructure area you have much more stable cash flows, so it is a lower level of risk," said Lee.

CASH RAISING

Ithmaar is bidding for a $5 billion infrastructure project, Lee said without giving details. Ithmaar's infrastructure projects include power generation, telecommunications and upstream and downstream energy projects, he said.

Ithmaar, which arranges financing for projects, including from clients in the world's biggest oil-exporting region, had no difficulty raising cash for a $1.6 billion island it is building for the healthcare industry off the coast of Bahrain, he said.

"We started the first phase of fund raising after the subprime crisis," Lee said.

Arcapita, which owns Northern Ireland utility Viridian, is in talks to buy as many as three Asian utilities for up to $3 billion each, Chief Executive Atif Abdulmalik told the Reuters Summit.

"For good value assets, people still bid. The market is not shut down. For good, valuable assets people will pay," Abdulmalik said.

Both Lee and Abdulmalik said they had no immediate plans to bring their Islamic bonds back to markets still reeling from U.S. mortgage defaults which drove up borrowing costs and made banks more reluctant to lend.

Ithmaar, which had been planning a five-year Islamic bond to raise at least $200 million last year, would return to the market after it recovered, Lee said, adding he would prefer to see spreads return to the level they were before June last year.