Project Finance: Practical Case Studies

Infrastructure requirements

There continue to be massive infrastructure requirements, particularly in developing coun-

tries. For example, the World Bank estimated that between 2001 and 2006 Latin America

alone would need more than US$70 billion per year in infrastructure investment to meet the

needs of its growing and largely impoverished population. Developing countries in other

regions have needs of a similar magnitude.

Privatisation

This is a worldwide trend that both reflects political currents and provides a way to supply

needed infrastructure in the face of government budgetary limitations. Variations on this

trend include public/private partnerships, notably the Private Finance Initiative in the

United Kingdom.

Legislative and regulatory frameworks

Historically, the lack of legislative and regulatory frameworks has been an impediment to

project financing in developing countries. Some case studies in these volumes, however,

show how sponsors of first-of-their-kind projects have worked with host governments to

develop legal and regulatory structures for future projects in emerging markets in Africa, Asia

and Latin America.

Financial innovation

As innovations are made in other financial disciplines, such as leasing, insurance and deriv-

atives-based financial risk management, they are applied quickly to project finance.

Broadened sources of funding

An ongoing trend since the early 1990s has been the growing use of bonds, both investment-

grade and high yield, for project financing. These bonds have been sold to a broadening base

of institutional investors, leading to a growth in credit-rated project debt. Connected to this

trend, power project portfolios and investment funds comprising projects from different

industries are providing investors with a way to spread risks and project sponsors with an

additional source of financing. Also related is the growing flexibility between bond and bank

financing, which is helped by the increasing number of financial institutions with both com-

mercial and investment banking capabilities which can offer both loan and bond alternatives

in a single project financing package.

Local currency financing

As the role of pension funds and other institutional investors broadens in many emerging mar-

kets, local-currency funding is becoming increasingly available for project financing. This

development is particularly helpful to sponsors of infrastructure projects that generate local-

currency revenues, as it allows them to avoid mismatches between those revenues and dollar-

denominated debt.

INTRODUCTION

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