Global Infrastructure Financing
Sources & Structures
International Development Consultants, LLC


For international project development, several forms of financing can be sought, from initial feasibility and project initiation financing through construction and longer term project operations. This article discusses seven forms of infrastructure (see definition below) financing often encountered in international project development.

Although the emerging markets financial crisis of the past two years has severely affected the volume, flow and risk profile of international investment projects, the elements presented below remain relevant. An overview of various public financing instruments available in the US and other industrial countries is presented, along with a brief discussion of the evolving Asian bond market and its importance in financing Asian growth within the coming decade.

Note about the author: Dr. J. Michael Cobb has been involved with developing, financing and implementing infrastructure and commercial-industrial projects in many regions of the world, including the Middle East, various regions in Asia, the Caribbean, Africa, Latin America and in the US. Please see his web site for specific examples and further details.


1. Feasibility Studies and Demonstration Projects

Loans or grants provided by governments, such as the US Trade and Development Administration, for financing the costs of preparing feasibility studies, business plans and in limited very defined cases, demonstration projects.

2. Venture Capital & Infrastructure Funds

Start-up financing from traditional venture capital groups for new enterprises is not usually available for international infrastructure projects, due to the high cost of due diligence and limited exit options for these firms. Typically, high rates of return , often 25-50%, are also required. However, a number of special purpose international investment funds have been created by large insurance companies and other major corporations for investing in major infrastructure projects.

3. Non-Recourse or Project finance

Refers to projects financed on the basis of projected cash flows of the project rather than on the credit worthiness of the borrowers or project's sponsors. Understanding and allocating risks among all parties are key components in project finance, and extensive project preparation and documentation regarding purchase or supply contracts and other documentation is required . Also, because lack of collateral, lenders require substantial equity participation by project developers. Large scale infrastructure projects having significant components of exported equipment, such as power generation projects, may have the following typical BOT project financing structure:

Project Financing Structure
Typical BOT for Power Projects


% of Project Costs


Foreign Export Credits 40% total project costs, and/or 85 % equipment costs 15 years, 3 years grace, slightly concessionary rates
Multilateral Agencies 10-15% credits & loan guarantees 12-15 years
Commercial Bank Debt 10% loans, 5-15 member bank syndicate 5-12 years
Multilateral Co-Financing Facilities 10% additional loans, umbrella for commercial banks reduces risk; participation limits may require co-financing 12-15 years
Local Bank Debt 10% loans in local currency for working capital 5-8 years, 2 years grace, usually higher interest rates than intl. syndicate banks
Private Placements, SEC Rule 144A 10% loans, beyond what may be available for commercial banks 5-12 years
Note: For a further discussion of the importance of project finance in promoting emerging markets development, see the accompanying article, "Promoting Private Infrastructure Finance."
4. Corporate Finance

Corporate finance, in contrast to project finance, bases debt and equity financing on a corporations project earnings and balance sheet, with its asset base as collateral for the debt financing. This form of financing is only available to financially strong established companies.

Equity Financing involves providing funding in return for an ownership interest in the project or enterprise. Return are in dividends on equity shares and in appreciation in share values.

Debt Financing involves loans secured by the assets of a corporation or project. Lenders typically require substantially more collateral than their exposure, which usually means that major portions of a project, often 25-50%, be finance through equity.

5. Export Credit Finance
Export credit finance, also termed trade financing, can be available to finance the export of goods and services from countries. It usually requires letters of credit from qualified local banks to assure repayments to the lenders in the exporting country.
6. Public Finance & Bond Funding
Public finance, often termed municipal or special authority borrowing, addresses public sector projects, and increasingly public-private integrated projects. Resulting project debt are usually based on overall tax revenues (general obligation bonds) or targeted revenues streams from specific projects (revenue bonds).

Whereas until recent years the distinction between public and private financing was mostly clear, in recent years integrated public-private revenue and cost-risk sharing arrangements are creating hybrid structures where public or private financing distinctions are not completely separate. (See discussion of Asian bond financing below).

7. Guarantees or Credit Enhancement Programs

Multilateral agencies, national governments and other sponsors often provide insurance, guarantees or other forms of credit enhancement mechanisms such as subordinated debt in order to make projects more attractive to investors or project lenders or investors. These credit enhancement mechanisms help reduce and reallocate project risks among lenders and investors in order to make project more attractive.



There are many type of public finance instruments used in the US and other industrialized countries. These include: general obligation, tax increment, sales tax and assessment bonds; revenue bonds related to industrial, power supply, water supply-wastewater treatment, airports, ports, solid waste disposal, parking, mass transit and other revenue producing projects or programs.

Other types of public finance instruments include refunding bonds, grant and bond anticipation notes, commercial paper, variable rate demand notes, leveraged leases, sale/leasebacks, lease financing certificates of participation, swaps, installment sale contracts and other secondary market derivative products. Discussion of these and other public financial instruments can be found through the FinanceNet home page and other internet sources.


Asian Development Bank Institute: WB 138, May 2009

Source: Asian Development Bank Institute, 2008

Newly added:

Policy bank to issue financial bonds
(05/16/2002) (China Daily)

Copyright 2002 By



The China Development Bank (CDB), the country's largest policy bank will likely issue financial bonds to Chinese citizens and domestic institutional investors soon.

The bank is still waiting for approval from the People's Bank of China, the country's central bank.

"(We) hope to get the approval as early as possible," said Chen Yuan, CDB governor, during the 25th annual conference of the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP).

Once approved, the CDB will be the only Chinese bank authorized to issue financial bonds to the public.

Bankers and officials from nearly 30 development financing institutions in over 20 countries and regions in Asia and the Pacific region gathered in Beijing Wednesday to discuss the strategy of development financial institutions (DFI) in the future.

Isoa Kalumaira, chairman of the ADFIAP said that the DFIs, including the CDB, will continue to play a critical role in promoting economic development in their countries by providing long-term funds for large projects, and they should also take measures to meet market challenges.

"The CDB's public financial bond will be a quasi-government bond, because of the low risks and stable returns. It is a highly safe investment tool," said Gao Xinguo, an official with CDB's Bureau of Funds.

The CDB's non-performance loan (NPL) ratio is now down to 3.58 per cent measured by the five-category assets classification method.

Though the amount of the public financial bond has yet to be decided, Gao said that a good-sized proportion of the bank's 200 billion yuan (US$24 billion) lending power will bring about certain positive effects to stimulate domestic investment.

Some 700 billion yuan (US$84 billion) in private savings still lie in Chinese banks for lack of safe investment channels for individual investors.

The issue of the new bond will also help accelerate the reform of China's financial sector by broadening the profit-making methods of domestic banks.

The CDB is a solely State-owned policy bank established in 1994 to finance China's key projects in infrastructure construction, the pillar industries, and basic industries.

The funds raised by the new bonds will be poured into these key projects, but only some lucrative projects with reliable guarantees will be selected in order to reduce risks, Guo added.

The financial bonds issued by the CDB are currently only limited to financial institutions, including domestic commercial banks, insurance companies and some securities companies.


Infrastructure Definition:

Infrastructure is often defined by international institutions as the technical structures that support an overall society and its various economy components. Elements typically include transportation, water supply and distribution, wastewater treatment facilities, telecommunications (internet, phone lines, and broadcasting), power sources and grids, dams and flood control and management systems.

In economic terms, however, institutions such as the Asian Development Bank further define infrastructure to include those structures which allows for the production and exchange of goods and services. Broadly defined, the concept of infrastructure is not limited to public utilities, but may also refer to information technology, informal and formal channels of communication, software development tools, and political and social networks which support the economic system (such as a city or a country). ADB and the National Research Council further define infrastructure to include the soft aspects of infrastructure such as operating procedures, management practices, and development policies that interact with societal demand and the physical world to facilitate the transport of people and goods, and the provision of safe water and energy, among others.

This article and our web site generally encompasses this broader definition of infrastructure


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Dr. J. Michael Cobb & IDC - International Development Consultants, LLC.  
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