Projects reaching financial or contractual closure
face more difficult financial market
infrastructure projects with private participation or PPP schemes continue
to raise financing, they are competing with other projects and sectors for
the reduced liquidity in the market. Some banks have partially or totally
withdrawn from the project finance market. Deals take longer to close, and
conditions are more stringent.
The syndicated loan
market remains stalled, and deals are
closing as club
transactions, which slows the speed of closure.
involves lower debt/equity ratios, higher spreads and fees, shorter debt
tenors, and embedded mechanisms to encourage refinancing. Surveyed projects
reaching financial closure in the third quarter of 2009 report debt/equity
ratios in the low to mid 70s/30s, well below the 80s/20s or higher that
were available in the pre-crisis period. In addition, there is a high
degree of selectivity on the part of banks and general lack of consistency
in terms and conditions required by funders.
The increased cost of
financing was highlighted as a major impact of the crisis in less than 1%
of reviewed projects by investment. But this finding seems to reflect the
limited publicly available information on the cost of funding rather than
the actual impact of the crisis. The favorable credit conditions prevailing
before the financial crisis are not expected to return.
financial conditions—including higher borrowing costs—are expected to
continue even after financial markets have stabilized or reached a new
normal. Increased risk aversion, necessity for banks to recapitalize,
increased borrowing requirements from high-income governments, and the fall
into disrepute of many of the risk management strategies that contributed
to boosting liquidity in the pre-crisis period suggest an increased cost of
borrowing in the medium term.
The new market
conditions are forcing governments and investors to reassess projects and
in many cases to restructure them to improve financial viability. Among
reviewed projects, about 4% by investment reported project restructuring as
a major impact of the crisis.
banks as well as multilateral and bilateral agencies continue to be key
infrastructure sponsors are looking for new sources of funding such as
local financing. Local public banks have become one of the main sources of
funding for private infrastructure projects. Of the 38 projects reaching
closure in the third quarter of 2009, 7 projects, accounting for 25% of the
investment committed in that quarter, had funding from local public banks.
In the first three quarters of the year local public banks participated in
the funding of 16% of the 163 projects reaching closure. These projects
involve investment of US$32.7 billion, or almost half the total committed
in the period. Public banks acted as lead arrangers in many cases.
bilateral, and export credit agencies are also taking a more active role,
mobilizing funding for many projects. In the third quarter of 2009 these
agencies provided funding to five projects, which represent investment of
US$3.4 billion, or 24% of the total for the quarter. In the first three
quarters of the year these agencies contributed direct financing to 18% of
the projects reaching closure - projects representing investment of US$13.3
billion, or 20% of the total. These agencies are also working on a growing
number of new projects. Of the 132 projects looking for financing at the
end of the third quarter, 21 projects, representing total investment of
US$17 billion, were being evaluated for funding by these agencies.
Given the lack of
liquidity from commercial banks that would normally take part in loan
syndications, this growing participation by local public banks and bilateral
and multilateral financing institutions is not surprising. Nevertheless,
these institutions are unlikely to have the capacity to fully replace
commercial sources of financing.
continue to show growth in investment (and debt raised), while
divestitures show a decline. Greenfield projects (build-operate-transfer
and build-operate-own projects and merchant facilities) have shown the most
resilience in investment levels during the crisis. The 26 greenfield
projects reaching closure in the third quarter of 2009 had investment worth
US$10 billion—36% more than the level reported in the same period of 2008.
In the first three quarters of 2009, 110 greenfield projects reached
closure, with investment worth US$49.8 billion—twice the investment
reported in the same period of 2008.
projects accounted for the investment growth in the first three quarters of
2009 compared with the same period of 2008. Investment in projects of US$1
billion or more grew by 170%, to US$28.6 billion. Investment in projects of
US$500 million–1 billion increased by 280%, to US$10.8 billion. By
contrast, investment in projects of less than US$500 million remained
stable, at US$10.5 billion. The number of greenfield projects reaching
financial closure was 5% higher in the first three quarters of 2009 than in
the same period of 2008.
continue to be best able to raise debt. Within the greenfield category,
particularly power plants, have raised the most debt since 2008.
contrast, have not been able to raise much financing. Many reached
contractual closure (with the concession contract being signed and the
private operator taking over the assets) with the agreement that funding
would be raised later. But many of the concessions reaching contractual
closure in 2008 and 2009 experienced delays in securing required financing.
Source: Public-Private Infrastructure
Advisory Facility, World Bank Group