Infrastructure PPP and Secondary Exits: Signs of a Developing Market

7 min 34 sec April 1, 2026 (Edited)

Written by

Suhail Mirza

Partner

s.mirza@tamimi.com View LinkedIn Profile

The UAE has successfully adopted public-private partnerships (PPP) as a model for procuring infrastructure across many sectors. The rollout of PPP has been supported by the government in the form of establishing PPP laws and guidance, published by the Department of Finance.

In addition, certain sectors, such as the independent water and power sectors, have adopted market-standard concession agreements (comprising power and water purchase agreements), which contain a generally understood allocation of risk between the private and public sectors. Such agreements (in template form) are viewed as ‘bankable’ to financiers and can help to make the process of procuring infrastructure more efficient, tapping into the expertise of the private sector.

Managing PPP risk

Investors generally perceive the risk (essentially contractor default) in PPP projects to be at its greatest during the procurement and construction phase. This is the stage when capital expenditure is required and there is a dependence on engineering, procurement, and construction (EPC) contractors to achieve completion requirements (both in terms of timing and construction standards).

A failure to meet the construction programme can typically lead to penalties (i.e. liquidated damages for delay) and carries a risk of termination of the project due to contractor default. As a result of this risk profile, greenfield projects tend to be delivered by established sponsors having a demonstrable track record of successfully completing projects and having the sufficient credibility to be able to obtain finance from lenders on a limited recourse basis.

Procuring authorities will, as part of their PPP procurement process, only award PPP contracts to consortia that are capable of pre-qualifying for this purpose. This shortlisting process may, therefore, preclude new entrants from the market unable to compete with established players. This particularly relates to foreign infrastructure funds that have not been involved in the PPP market in the UAE; accordingly, opportunities for new market entrants can be limited. That said, experience is showing that the UAE is now developing secondary investment opportunities in the infrastructure market, particularly as the first wave of PPP projects have entered their operational phase and initial sponsors look to exit (partially or fully) from their investment.

Moreover, the existence of a healthy secondary market is vital to incentivise investment, as it provides initial sponsors with a defined exit route. The proceeds of such exit are capable of being redeployed into a wider pool of projects, rather than being locked into a particular project throughout the operational phase. Furthermore, a demand for PPP equity stakes enables initial sponsors to drive up prices using conventional M&A auction processes to divest their equity stakes on a favourable basis.

What is a secondary investment market?

A secondary investment market permits a new investor to participate in a PPP project by acquiring a stake in a project company (sometimes described as special purpose vehicle, or SPV) that has been awarded the PPP contract.

Such investment opportunities are usually available to an investor once an initial ‘lock-up period’ has lapsed. A lock-up period is typically the period that (a) commences on the date construction of the infrastructure project begins, and (b) expires a year or two after the infrastructure is commissioned and enters the operational phase (or concession period).

During the lock-up period, the procuring authority will generally prohibit any transfer of shares. The rationale for a lock-up period is that, during the construction phase, the project requires technical and financial stability and the sponsors (shortlisted for their expertise and resources) must be able to deliver the project strictly in accordance with the procuring authority’s requirements. Hence, PPP contracts will prohibit any dealing in the shares of the SPV during this period. Once the lock-up period has lapsed, sponsors may consider divesting some or all of their interests in the SPV and exiting from the PPP project.

Considerations applicable to a secondary investment opportunity

As with any M&A transaction, a potential investor will want to undertake legal, financial, and technical due diligence on a secondary investment transaction. In the PPP market, such due diligence will focus on general M&A considerations, but will always require a focus on specific matters that are relevant to the industry sector or arising from the often-complex sub-contract and financing structure of PPP projects.

For a secondary investor, some of the key areas of focus will be as follows.

• Third-party (including lender) consents. It should standard practice on a PPP project that a transfer of shares in the SPV requires third-party consent, including the consent of the procuring authority/counterparty to the concession agreement, the regulatory authorities (for licensing purposes), and the lenders to the SPV (under applicable credit facilities). In addition, the procuring authority may have a requirement that a new investor meets a minimum technical or financial criterion (which should be less onerous when compared to the initial sponsor requirements). Completion of a secondary investment will necessitate the satisfaction of a number of conditions precedent.
• Pre-emption rights, or rights of first offer and refusal. Shareholders’ agreements (and other constitutional documents) in the context of PPP transactions will incorporate provisions (as between shareholders) to oblige an exiting shareholder to offer its shares to the incumbent shareholder prior to any third party sale. Such rights are also entrenched under UAE commercial companies law and other laws applicable to the SPV. Hence, as a condition to any transfer to a third party, typically the incumbent shareholders may need to waive their rights of pre-emption.
  In addition, it is a common theme in the UAE that SPVs also have an element of government ownership. For example, in the independent waste water and power (IWPP) sector, procuring authorities such the Dubai Electricity & Water Authority maintain a stake in the SPV. Upon a partial exit by a co-investor, the incumbent government sponsor may look to acquire the exiting shareholders’ stake, taking the benefit of its understanding of the project.
• Project-specific risks.PPP concession periods are typically between 10 and 35  The operational aspects of the project are likely to cause specific technical concerns around matters such as lifecycle maintenance and equipment replacement, particularly if technology has been subject to change and upgrades are necessary to maintain the efficiency of the infrastructure.
  In addition, IWPP projects are energy intensive and the cost component will be an important factor in the assessment of shareholder returns and profitability. As part of the financial due diligence, a secondary investor may want to review the energy input costs (as well as other inputs into the financial model governing the project).
• Construction matters. Given the significance of construction-related obligations under a PPP project, a secondary investor will be keen to confirm the testing and commissioning of the infrastructure (including any periodic testing during the operational phase), and obtain an assurance that there are no defects in the infrastructure and that all handover procedures (including testing of the infrastructure) conforms to the procurer’s requirements. Due diligence in this respect may also involve a ‘deep dive’ into the provision of completion certificates and collateral warranties from the EPC contractor and members of the professional team engaged by the EPC c
  Notably, in the context of M&A negotiations, an exiting investor (particularly in the form of an institutional investor) may be reluctant to provide commercial warranties under the share sale documentation. Consequently, the secondary investor would be under an onus to manage this risk by way of due diligence and being comfortable with the operational and management contractors involved in the PPP project.
• Change in law risk. PPP contracts are unique insofar that they contain contractual protection for the SPV (and indirectly to investors in the SPV) in relation to the costs implications arising from a change in law. This is particularly relevant in the context of a long-term concession where, for example, the construction standards may be revised as a result of policy changes to address ESG. It is therefore important to a secondary investor to assess the level of contractual protection from such risks.
  Notably, some sectors in the UAE were adversely effected by the COVID-19 pandemic and delay/costs claims remain subject to dispute resolution (including arbitration), with contractors seeking change of law protection arising from UAE government policies preventing the movement of labour. Such disputes are also assessed on the basis of force majeure, so investors needs to be aware of the likely effects on forecasted project returns once these disputes are settled.

The outlook going forward

The outlook for secondary investment in the UAE PPP projects is robust. The UAE continues to announce new projects, and commentators believe the pipeline will remain buoyant, given the requirement to cater to an ever-growing population. Notable projects that are under procurement include the extension of the Dubai Metro, a storm water management project in Dubai, and other social infrastructure projects, including affordable housing and schools.

As the PPP market continues to mature, such projects will prove attractive investments to investors. Given the UAE’s friendly investment climate (particularly open to foreign ownership supported by investment-grade government budget surpluses), we anticipate the secondary market will continue to evolve in the right direction.