23 May 2010 - ARI
Iraq has awarded the UK investment and private equity company MerchantBridge a contract to upgrade a large cement factory as the new government seeks to rebuild the country.
After winning the contract from the Iraqi ministry of industry and minerals, MerchantBridge will spend US$200 million on renovating and operating the plant under a 15-year lease.
One of the largest private investors in Iraq, it said financing would come from a combination of debt, the company’s own cash, outside investors and money generated from the factory.
Investment has started to trickle into Iraq as insurgency eases, while new roads, schools, hospitals and homes are being built as part of a $180 billion reconstruction plan.
MerchantBridge has formed a partnership with France’s Lafarge, one of the biggest building materials companies in the world, to operate the plant, which aims to produce 1.8 million tonnes of cement a year by 2013.
Lafarge already has a significant share of Iraq’s cement market and owns two plants in the country.
Abdullah Lahoud, a partner at MerchantBridge, said Iraq produced 7 million tonnes of cement a year, but demand was about double that amount.
“Over the next three years there’s going to be a major supply-demand gap,” Mr Lahoud said. “… we’re getting to the point where the government needs to do something “We expect the new government to focus very much on reconstruction and the economy. It wasn’t a priority before.”
A few UAE developers announced plans for projects in Iraq in 2007 and 2008, just before the financial crisis took hold of the Emirates’s property sector.
Among them were Abu Dhabi’s Al Maabar and Bloom Properties, and Dubai’s Damac Properties. Deyaar Developments also said last year it was considering a move into Iraq.
But expansion plans have been set back by the global downturn, with most companies instead concentrating on finishing projects at home.
Contractors including Al Habtoor Engineering have also hinted at bidding for infrastructure projects in Iraq.
So far, however, most construction in the country has been dominated by Jordanian firms.
“Iraq is something that intrigues people but there’s a lack of information … in terms of what to expect when they go into Iraq and how to secure a project,” said Lisa Dale, a partner and the head of property at Al Tamimi and Company, a UAE-based law firm that opened an office in Iraq in 2005.
“You’ve still got the security issues as well as funding issues. It’s not easy to raise project development finance in Iraq itself, which means you rely on external finances.
“Companies also have a whole host of issues and questions surrounding things like land ownership, whether they can register a mortgage and political stability.”
Ms Dale said a lot of investment was being ploughed into the country’s social infrastructure, as well as new homes for people returning home after being displaced by the war.
“We need some bold pioneers; for one or two of the UAE developers who had put it on their radar as something intriguing a couple of years ago to actually give it focus now, because once you get one or two, the others will follow suit quite quickly,” she said.