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DUBAI, Jan 28 (Reuters) - Gulf governments are ramping up infrastructure deals with foreign investors, and Kuwait is set to launch a sale of a stake in an oil pipeline network in February that could raise up to $7 billion, three sources familiar with the matter said.

This shift comes at a time when oil prices have fallen by more than 25 percent in two years, below the levels needed to fund economic diversification plans in the Gulf. Governments are now offering investors access to previously off-limits assets, including pipelines, power plants, and other infrastructure, to attract funds from pension funds, private equity firms, and infrastructure specialists.

Bader Mousa Al-Saif, an assistant professor of history at Kuwait University and a fellow at the British Chatham House Institute, said that the transformation plans underway in the Gulf are bold and ambitious and cannot be fully funded from within.

He added that attracting international markets is multi-directional and from multiple sources, coming from all over the Gulf, and uses all available means to finance projects.

Sources said that for the Kuwaiti deal, Kuwait Petroleum Corporation (KPC) has appointed HSBC, JPMorgan, and Centrifuge Partners as advisors. Four sources said HSBC is also arranging what is known as "principal financing" that buyers can use to support the purchases, while three sources said the advisors are currently seeking investors.

Saudi Aramco is preparing to sell some of its gas-fired power plants in the coming weeks in a deal that, according to two sources, is expected to raise about four billion dollars.

JPMorgan, Centravo Partners, and Aramco declined to comment. Kuwait Petroleum Corporation and HSBC have not yet responded to requests for comment.

Other deals are in the works.

Rajesh Singh, head of mergers and acquisitions advisory at Standard Chartered, said the region could see multi-billion dollar infrastructure deals over the next twelve months.

"We may see a new wave of deals, as additional assets are being prepared for market offerings," Singe added.

He went on to say that the bank advised on the sale of Abu Dhabi-based Pal Cooling Holdings for AED 3.8 billion ($1.03 billion) last year, and that it is preparing more assets in the district cooling sector for sale.

He explained that the entry of specialized investors led to more sophisticated deals and attracted new sources of capital such as pension funds and insurance companies that were not present in the region.

Western funds are looking to the East.

Rana Karadsha Haddad, head of infrastructure at Caisse de Dépôt, Canada’s second-largest pension fund with $290 billion in assets, said it is seeking new infrastructure investments in the Gulf beyond its stake in DP World.

She added to Reuters, "Our focus right now is on identifying the right partners in our long-term outlook and approach to asset management."

The number of investors establishing offices in the Gulf is increasing, with Australia’s Macquarie Group looking for a headquarters in Saudi Arabia, while US firm BlackRock opened an office in Kuwait last year.

BlackRock’s Global Infrastructure Partners led an $11 billion deal last year linked to Aramco’s infrastructure assets for the Jafurah gas project, which is likely to be the largest shale gas project outside the United States.

Sources said Aramco could divest other assets such as housing, pipelines and port infrastructure.

* Pipeline returns are attractive

For Gulf state-owned companies, share sales allow them to raise funds for expansion and higher-growth projects while retaining operational control. Sources and analysts said that state-owned oil companies pursue these deals, despite the availability of cheaper debt, to diversify their funding sources and attract long-term institutional investors.

Gulf pipeline deals offer investors a minority stake with long-term lease payments. Two sources said such deals generate returns of between 12 and 14 percent and provide stable cash flows pegged to the dollar.

Three sources said the Kuwaiti deal is expected to follow the model used throughout the region, with the government retaining a majority stake and day-to-day operational control.

The sources said the deals typically offer a return equal to US Treasury bonds plus the issuer's credit spread plus a premium on the deal.

This model led to the emergence of a secondary market. In April 2024, BlackRock and KKR sold their 40 percent stake in ADNOC Oil Pipelines to Abu Dhabi-based Lunet, and KKR returned to invest in ADNOC's gas assets less than a year later.

“The nature of the financial return is very attractive,” says Ben Powell, an analyst at BlackRock’s Asia Pacific and Middle East Investment Institute. “It’s a sustainable and almost guaranteed income stream in a world where it’s hard to find.”