Published: April 9, 2025
Following a landmark USUS$1.5bn project financing, the Hafeet Rail project is well underway. So what will this first-of-its-kind initiative mean for transport and logistics in the GCC?
The Hafeet Rail project, when operational, will represent an important step forward for the GCC. As the region’s first cross-border rail network, linking Oman and the UAE, it provides the first link in a unified transport chain that will ultimately span the region. It promises to radically improve freight transport, while cutting the travel time between Abu Dhabi and Sohar to just 100 minutes.
Initially called the Oman-Etihad Rail Company, Hafeet Rail is a joint venture between the two state rail companies. They first joined forces in September 2022, before rebranding as Hafeet Rail in April 2024. At this point, they also signed a partnership agreement with Mubadala Investment Company and began construction works.
Then, in October 2024, the project secured US$1.5bn in debt financing from a diverse consortium of 17 banks. The sponsors appointed Standard Chartered as their lead financial advisor and First Abu Dhabi Bank as co-financial advisor, with Dentons providing legal counsel. It meant the project was now fully funded at US$2.5bn (US$1.5bn from the banks and US$1bn from the sponsors).
“One of the most successful features of the project financing was the speed at which a first-of-its-kind cross-border project came to fruition,” Stephen Knight, a partner in Dentons’ Abu Dhabi office, tells EMEA Finance. “In just over a year, the sponsors had put pen to paper and documented the entire transaction, demonstrating the commitment of the financiers, the sponsors and the respective governments.”
The project financing
In a testament to the strategic importance of the project – and the strong business case for initiating it – the financing was oversubscribed. The banks themselves included local, regional, and international financiers, with notable support from Emirati and Omani institutions.
“This high level of interest reflects strong confidence in the project’s viability, strategic significance and alignment with the region’s sustainability goals,” comments Knight. “It also reflects the strong support of the governments of the UAE and Oman for the long-term success of the project and the beneficial impact it will have on the socioeconomic and competitive environment in both countries.”
He notes that the financing was structured on a limited recourse project finance basis, driven by the tight project development timeline. The facilities were split into conventional and Islamic Istisna’a-Ijara facilities, with initial tenors of eight and 12 years. While there was strong interest from export credit agencies and DFIs, the sponsors decided that a liquidity pool from commercial banks would be more amenable to the timeframe.
“Broadly speaking, the sponsors took limited construction risk, and the financiers took revenue risk,” adds Knight. “Outside of this, there were three main structuring considerations – refinancing risk, operating model and future proofing.”
The financing wasn’t entirely straightforward. The hardest part, from Dentons’ perspective, was the need to draw on features of other regional financings. That way, they could ensure that the sponsors’ objectives were achieved in a manner that would also be acceptable to the banking community. At the same time, the project needed to function as a template for others to follow.
“As the region’s first ever greenfield rail project to be financed on a limited recourse project finance basis, it should serve as a benchmark for several other rail projects in the future,” says Knight.
Future benefits
Once the network is completed, it will span 238km from the Sohar Port freezone in north-eastern Oman to Al Wathba in the UAE. It will connect five major ports, more than 12 passenger stations, and more than 15 integrated freight facilities, facilitating the movement of people and goods. On top of that, it will include 60 bridges, and several tunnels extending up to 2.5km.
Local producers and manufacturers will quickly see the benefits. They will be better able to access larger markets, both domestically and internationally.