Principles of Project Finance CH24

The Principles of Project FinanceEdited by

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24 Project Finance in Emerging Markets

ATIF AnSArBT Centre for Major Programme Management, Saïd Business School, University of Oxford

The number and volume of non-recourse project finance deals in emerging markets (hereafter EM), as reported by the Thomson Reuters PFI database, were at an all-time high in 2010. The momentum in emerging markets project finance (EMPF) has propelled the State Bank of India as the global No. 1 Mandated Lead Arranger as of the first quarter of 2011. Over 200 deals with a total value of over US$130bn were signed in 2010 across the BRICs (Brazil, Russia, India, and China), emerging Europe, and the next frontier markets in Asia, the Gulf, Africa, and Latin America. This makes the project finance market nearly twice as large as the market for initial public offerings (IPOs) in emerging markets.1

The robust project finance volumes in EM from 2006–Q1 of 2011 (see Figure 24.1) are surprising. Global economies have suffered one of the worst financial crises in history during this period leading to significant reduction in gross capital inflows in emerging countries.2 What explains the expanding use of non-recourse project finance in EM? Despite the upward trend in EMPF in recent years, the longer term year-on-year growth in total value and number of EMPF deals has been anything but steady (see Figure 24.1). Increases in 1996–1997 and 2000 were followed by precipitous declines. Is the record volume of EMPF deals in 2010 slated for a similar slowdown or will project finance remain in vogue in emerging markets going forwards? Why might project finance, despite typically higher cost of funding, be attractive in emerging markets?

In addressing these questions this chapter will argue that project finance is here to stay as one of the most significant sources of long-dated financing in EM. Underpinning the expanding importance of project finance in emerging countries is a critical shift. Instead of a reliance on foreign arrangers, home-grown, and often State-backed, intermediaries such as State Bank of India, Bank of China, China Construction Bank, VEB in Russia, and BNDES in Brazil are assuming a central role in making project finance deals happen. Similarly, domestic institutional investors and banks – and not foreign investors – are becoming the proportionally largest source of capital for many EMPF transactions. Home-grown intermediaries, from an investor relationship perspective, are aided in their ability

1 Ernst & Young, 2011, Global IPO Trends 2011. Available at http://www.ey.com/Publication/vwLUAssets/Global-IPO-trends_2011/$FILE/Global%20IPO%20trends%202011.pdf [Accessed 4 July 2011].

2 Bank of International Settlements, 2010, 1.

288 T h e P r i n c i p l e s o f P r o j e c t F i n a n c e

to arrange the transactions. If the legal and regulatory frameworks in emerging markets keep pace, EMPF volumes can be expected to grow strongly in coming years, outpacing developed countries.3

The chapter is organized as follows. The first section analyses trends in EMPF by breaking down the data in Figure 24.1 further by country and sector. The second section looks at the general characteristics of project finance in emerging markets and how these differ from project finance in developed countries. The third section also looks at what makes project finance particularly suitable to emerging markets. Several case examples are discussed. The final section concludes with some thoughts about the future of project finance in emerging countries.

Trends in emerging Markets Project Finances (eMPF) by region and Sector

East and South Asia have led the way in EMPF since 1991 (see Figure 24.2a and b). In recent years India has led the way with a number of flagship deals. These range from the recently closed Mumbai Metro 2 being developed by Reliance Energy and SNC Lavlin to the 3,960MW Krishnapatnam Ultra Mega Power Plant Project being developed by Reliance Power at a cost of over US$3.6bn. Similarly, China (including Hong Kong) hosts several innovative PF deals each year. In recent years, PF deals in China have been of a smaller scale on the mainland such as the Gansu Guazhou Ganhekou No. 8 Wind Farm or the Beijing Gao-an-tun Waste to Energy Project. Hong Kong’s US$5.6bn, Hong Kong

3 Note that all data reported here come from Thomson Reuters’ PFI database at www.pfie.com. Any errors in the data ought to be reported directly to Thomson Reuters’ data team.

Figure 24.1 emerging market project finances transactions 1991–2010 (Us$m)

Source: Thomson Reuters PFI database at www.pfie.com. 2011 forecast is the author’s estimate3

289P r o j e c t F i n a n c e i n e m e r g i n g M a r k e t s

– Zhuhai – Macao Bridge Hong Kong Link, however, is amongst the largest road projects ever financed using non-recourse debt. The dominance of Asia is also aided by robust deal volumes in South Korea, Taiwan, Indonesia, Thailand, Malaysia, and Singapore. All of these Asian countries are amongst top 15 emerging markets in terms of total volume of project finance deals closed since 1991.

Despite the importance of project finance in Asia, some of the largest deals have happened elsewhere. For example the Yamal Gas Pipeline in Russia, the Jubail and Rabigh refineries in Saudi Arabia, or Qatargas’ LNG projects. The scale of relatively fewer but larger deals in oil and gas and petrochemicals, in particular, that propel the Middle East and North Africa (MENA) as a runner-up to East Asia in term of project finance volumes since 1991.

Latin America and the Caribbean (LAC) are, however, not far behind. In fact, since 2007, LAC, led by Brazil, has seen nearly twice as much PF volume as MENA. This is partly explained by the fact that MENA had by 2007 embarked on some very large refining and LNG projects and many foreign investors were up against country limits of how much they could lend in MENA. In terms of deal size the oil and gas has also been important in Brazil. But equally important has been the electricity generation sector. Brazil’s largest-ever deal, for instance, is the Jirau Hydroelectric dam. The financing for the dam closed in 2009 with US$5.4bn raised from the markets.

Brazil’s lead in LAC is relatively recent. Mexico has in the past been the leading PF market in Latin America in part also owing to significant oil and gas deals (e.g., Ku-Maloob-Zaap Oil Field Development or the Manzanillo LNG Project). One of the more intriguing areas in Mexican project finance has, however, been privately developed toll

Figure 24.2(a) Where are the project finance deals in emerging markets? 1991–2010, cumulatively, by region

Source: Thomson Reuters PFI database at www.pfie.com


roads. Between 1989 and 1994, during the first wave of private highway development in Mexico, over 50 toll road concessions were granted. Many of these toll-road-concessionaires collapsed in mid-1990s due to adverse economic conditions and were nationalized. By late 1990s as conditions approved these roads were re-privatized. With deeper operational experience and a general uplift in the economy, the economics of these roads improved, credit quality increased, and soon significant new transactions followed. The largest of these has been the 2007 deal to support the expansion, operation, and maintenance of 558km of toll roads in Guadalajara. The Inter-American Development Bank, a multilateral organization like the World Bank, also participated in the deal by providing a partial credit guarantee to support the bond issuance.

Former Soviet Union, emerging European Union (EU) – which includes countries such as Poland, Czech Republic, Hungary etc. – and Eastern Europe – such as Turkey, Croatia, or Macedonia – have also seen low but steady volumes of non-recourse deals. Russia is clearly the leading market dominated by oil and gas transaction sponsored by State-operated companies (e.g., the Yamal Gas Pipeline). A recent development in Russian PF market has been the emergence of transport PPPs. The approx. US$2bn Moscow–St Petersburg Motorway PPP concession won by Vinci is one such flagship deal that closed in 2010. This deal is seen by many as a harbinger for a more robust deal pipeline in Russia. Vnesheconombank (VEB) – the Russian State-development bank – played a critical and enabling role in helping this deal succeed. Such a role of State-led intermediaries is increasing in emerging markets. It is a significant development because it helps reduce risk in the deals by aligning the governments’ interest with those of foreign investors and concessionaires.

Figure 24.2(b) Where are the project finance deals in emerging markets? 1991–2010, annually, by region (Us$m)



In terms of sectoral trends, oil and gas deals – development of new fields, oil refineries, LNG terminals, and pipelines – are clearly a front-runner, accounting for nearly a quarter of all EMPF transaction by volume since 1991 (see Figure 24.3). The closely related sector of petrochemicals also accounts for a large share. Both these sectors require vast amounts of capital, relatively long development horizons, and extensive technical competence. It is no surprise that the world’s largest national and international oil companies (NOCs and IOCs) sponsor such deals.4 Because of the strategic nature of oil and gas, government involvement in these deals is paramount even when the government, or a state-owned enterprise, is not amongst the sponsors.

Equally important is the greenfield power generation and transmission sector (see Figure 24.3) for which PF has been the single most important source of funding in developing countries. For the majority of power generation deals, such as the recently closed Kondapalli gas-fired combined cycle power plant in India or the Konin combined heat and power coal-fired power plant in Poland, the debt involves direct finance or credit enhancement from export credit agencies and/or multilateral development banks. This is usually because of the large slice of imported equipment inherent to power generation.

4 A national oil company (NOC) is an oil company fully or in the majority owned by a national government. According to the United States Energy Information Administration, NOCs accounted for 52 per cent global oil production and controlled 88 per cent of proven oil reserves in 2007. Major NOCs include: Abu Dhabi National Oil Company; China National Offshore Oil Company (CNOOC); Petrobras; Rosneft; Saudi Arabian Oil Company (Aramco). International oil companies (IOCs) include oil majors such as ExxonMobil, BP, Chevron, Total, or Shell.

Figure 24.3 the sectoral trends in emerging markets project finance, 1991–2010



Development time for power deals average two to three years, and even shorter in countries with a mature legal and regulatory framework to deal with independent power production. The shorter duration required for power projects makes these deals attractive to a broader set of project sponsors and investors.

Roads and transport deals are also a consistent component of EMPF as examples from Hong Kong, Russia, and Mexico show. Because most of the project finance roads in developing countries are financed from user fees rather than general tax revenues or shadow tolls, this has an important disciplining force. If, for example, traffic projections turn out to be too optimistic, it is the investors rather than the government which bear the financial distress. From many capital-poor countries this is a welcome way of risk sharing. The art of road pricing, however, remains in its infancy. Many tolled roads face competition from non-tolled roads making it difficult to project future traffic volumes. Evidence suggests that in order to get projects financed, forecasters often overstate the traffic. Whilst data are currently not available, concession and debt renegotiations appear more pervasive in the road sector than in the oil and gas or power sectors.

Note that formal Public-Private Partnerships (PPP) accounted for 4.3 per cent across a variety of sectors. The involvement of governments in EMPF is, however, considerably higher as the next section will discuss.

General Characteristics of Project Finance in emerging Markets

Projects, i.e., temporary endeavours undertaken to meet specific benefit targets, financed through project finance have the following general characteristics. These projects tend to be large-scale investments. The average size of EMPF projects between 1991 and 2010 is US$598.7m (median is US$247.2m) in nominal dollars. The average for developed countries is US$ 381.3m (median is US$148.9m). These projects go through three distinct step-changes: planning, delivery (or construction) across a specified schedule, and operation. The project finance is typically put in place towards the end of the planning phase and the only purpose of the financing is to complete the delivery of the project and graduate it to the operational phase. The planning and delivery phases consume cash, whereas positive cash flows ensue during the operation phase, which pay-off the incurred outlays and their cost of financing. If all goes to plan, any remaining positive cash flows (denominated in the currency in which the output is sold during operation) accrue to the equity holders until the life of the project expires at which point it is sold for scrap value. The forecasted project performance, against which the financing is secured, can be thought of in terms of i) scope of work, ii) schedule, iii) upfront and operational costs, and iv) output/benefits yielded during operation. On the one hand, cost overruns, poor estimates of demand for eventual output, adverse interest rate or exchange rate movements, or other risks can turn a good planned investment idea into a financial disaster. On the other hand, higher-than-expected volume or price of the output yielded during the operational phase, with costs remaining in line with projections, can create substantial profits for sponsors. Due to extreme focus on specific out and in-cash flows of a project, project finance is conceptually far more transparent than the black box of corporation finance. In providing corporate finance, investors sign up to an ill-defined buffet of investment ideas the managers of the corporation may cook up. Project


finance takes an à la carte approach. This conceptual simplicity of project finance is of considerable value in emerging markets.

The ring-fencing of a project and its specific cash flow profile requires the creation of a special purpose vehicle – SPV – (also often called the project company). This legal entity has a limited and independent life, and is the formal borrower under all loan documents so that, in the event of default, sponsors are not directly responsible before financial creditors. Instead, their legal claims are against the SPV assets. In return for enjoying a hedge against future financial distress in case a project goes awry, the sponsors also have to give up considerable operational freedom by binding themselves to certain types of contractual obligations (under a variety of commercial, financial, and construction contracts) that define the terms of action throughout the life of the project. In-take and off-take agreements, project completion guarantees, or long-term equipment service agreements are thus an integral feature of project finance. At a practical level, project finance deals with core theoretical concerns regarding future ‘hold up’ (or opportunism) inherent to making relationship specific investments. Project finance is equally adept at addressing the theoretical problems of information asymmetry and principal-agent problem between investors and their managers. By tightly structuring the project around its cash flows, investors reduce their dependence on managerial capture.

TyPeS OF SPOnSOrS

There are three types of sponsors who use project finance in emerging markets.

1. Multinational corporations (multinationals also often bring other parties, e.g., construction contractors or equipment manufacturers into the deal, which can be called a sub category of ‘piggybacking foreign sponsors’).

2. Host country governments, and government-backed enterprises.3. Domestic firms, particularly relative newcomers to the capital markets. In many cases

project finance is the debut transaction of some scale for the sponsors backing the project. Often successful projects are later restructured into a corporate holding and sold to the market on a stock exchange public offering. This evolution from project finance to corporate finance helps to bring down the cost of funds for future projects but only once the entrepreneur or sponsor backing the projects has proved his or her track record.

It is difficult to describe with precision how many of the EMPF deals in the last 20 years have been done by which type of a sponsor. Much of this is attributable to the bespoke nature of EMPF deals in which various types of sponsors form complex relationships in order to execute the project. For instance, the Dabhol power project in India involved three multinationals (Enron, Bechtel, and GE) and the State Government of Maharashtra as the project sponsors. Similarly, the sponsors for the Nghe An Tate & Lyle Sugar project in Vietnam closed in 1998 included Tate & Lyle – a multinational – in partnership with a Thailand based sugar firm, a Dublin-listed private equity fund, and a local Vietnamese partner. The government of Vietnam was also instrumental throughout the process.5

5 See Esty, B. (2004) Modern project finance: A case book. New York, John Wiley & Sons.


Figure 24.4 provides an impressionistic view of which of the sponsor types are often in the lead in promoting an EMPF deal and how these sponsors often overlap.

Text cloud, tag cloud, and word tree analysis of over 2,000 EMPF deals signed since 1991 suggests that in emerging markets there is a great emphasis on co-partnering across the three main types of sponsors – i.e., multinationals, local firms, and host country central or local level governments or enterprises set up by the governments. Such risk sharing is of importance. The multinationals often bring technology, seed equity capital, and access to global marketing/customers. Multinationals, however, seek to limit their exposure to the country, commercial, and financing risks inherent to large-scale investments in EM. In such cases the multinational sponsors share these risks with local partners, local governments, foreign and local banks, export credit agencies (ECAs), multilateral agencies, and relatively rarely the capital markets. A local partner in EM is often important because it has access to the local pool of labour, unencumbered land, local customers, and usually local pools of finance. Finally, host country governments, which can be a source of considerable expropriation, tax, and legislative risk when they act capriciously, are often included in the projects. Governments in many countries also tightly control rights to natural resources (e.g., oil, mines, or water) and land. In such instances it is also necessary to include the government in the project as a sponsor in order to align the interests of private investors with the public sector.

Figure 24.4 sponsor type in emerging markets projects finance

Source: Author’s impressionistic view


TyPeS OF COnTrACTS

When the sponsor is the host Government of an emerging economy, the longest-established and most widespread method of project financing is BOT (Build Operate and Transfer). BOT structure involves the granting of a concession (sometimes called an authorization or a licence) by a properly empowered governmental authority (the grantor) to a special purpose company (the concessionaire). Under the concession, the concessionaire would agree to finance, build, control and operate a facility for a limited time, typically 20 to 35 years, after which responsibility for the facility is transferred to the government, usually free of charge. The concessionaires typically assume primary responsibility for constructing the project, arranging financing, performing maintenance, and collect tolls, whilst the public sector retains legal ownership. In most projects design responsibility is shared, with the public sector taking the lead in the preliminary design (including route alignment, number of lanes, interchanges, and other high-level design specifications) and the private sector completing the detailed design, subject to government approval. A typical BOT structure looks like as follows (see Figure 24.5).

There are several variants of BOT (see Table 24.1).

Figure 24.5 a typical Bot structure

Source: World Bank


table 24.1 contract types

BOO Build Operate Own

BOT Build Operate Transfer

BOOT Build Own Operate Transfer

DBFO Design Build Finance Operate

BTO Build Transfer Operate

BlT Build lease Transfer

Source: Gatti (2008)6

A shared aspect of all of these forms of contracts is their long-term nature. Contractually, durability is necessary to match the durability of investments being rendered. However, precisely because of their long-term nature, these contracts suffer from the risk of mispricing. It is not uncommon for a concession to be awarded for too high or too low a bid. On the one hand, a concession with generous terms for the private party can become a political liability for a government. On the other hand, overpaying to clinch a deal can quickly lead to financial distress for private investors. A solution to this risk of mispricing has been greater reliance on derivative contracts such as futures, over-the-counter instruments, and swaps.

Another problem of long-term contracts is that they act to forestall competition. For example, long-term supply contracts between a few large iron ore mining companies and a few large steel processing companies would make it difficult for other steel producers to enter the market. Competition regulators have begun to take notice of this problem. For example, some influential voices in the US and Europe are calling for a potential ban on long-term contracts in the natural gas supply, which will also apply to power generation. The impact such a ban may have on EMPF, particularly in gas producing countries such as Russia or Qatar, is yet to be seen.

hOw DOeS PrOJeCT FInAnCe In eMerGInG MArkeTS DIFFer FrOM DevelOPeD COunTrIeS?

The essential structure of project finance is the same in developed or emerging markets. There is, of course, considerable variation in terms of average deal size, funding costs, number of corporate sponsors, credit ratings, reliance on banks versus bond markets, cost of insurance, etc. Such variations are, however, more appropriately looked at a country-by-country level. I ought to mention that project finance in developed countries is dominated by the Anglo-American model, whereas there is considerably more variation in emerging markets. The US, UK, Australia/NZ, Canada, and Ireland account for nearly two-thirds of the total project finance volume amongst developed countries. The dominance of the Anglo-American model may provide a few speculative clues as to why India and Hong Kong, which have a strong common law tradition, have been so successful at project finance.

6 Gatti, S. (2008) Project finance in theory and practice: designing, structuring, and financing private and public projects. Burlington, Academic Press.


Apart from some structural variations, there are a few more generalized differences between project finance in developed versus emerging countries.

First, as seen above, there is greater discretionary governmental interaction in developing countries, even when a government, or a state-owned enterprise, is not explicitly part of a deal. The ability to get deals done in emerging markets is highly correlated with the entrepreneurialism of the host government; and ability of a foreign or local sponsor to ‘relationally’ contract with the state. Such discretionary contracting has pros and cons. The pros are that there is great flexibility of how the project can be structured; the government may be able to provide land, flexible taxation, or non-pecuniary support to aid a project to succeed. The serious drawback is, however, the threat of corruption. There is little reliable research into the extent of graft in EMPF but industry practitioners do acknowledge this to be a problem.

Second, there is considerable involvement of intermediaries such as multilateral institutions (World Bank, IFC, EBRD) and ECAs. One of the main financial products of multilateral institutions is the A loan/B loan structure, in which a multilateral institution funds the A loan and syndicates the B loan to private sector financial institutions. The multilateral bank is the ‘lender of record’ for the B loan and all loan payments are shared pro rata between the multilateral bank and the B loan lenders. A borrower cannot default on a B loan without also defaulting on the A loan, thereby jeopardizing the host country’s relationship with the multilateral institution.7

ECAs do not offer formal A loan/B loan structures. Instead, ECAs act as an intermediary between national governments and exporters to issue export financing. The financing can take the form of direct lending to the importer, loans to a financial intermediary in the importing country, credit insurance and/or guarantees to the exporter. ECAs currently finance or underwrite about US$430bn of business abroad – about US$55bn of which goes towards project finance in emerging markets. ECAs, in this regard, are larger than multilateral sources of finance. The ability of private sector lenders to fund side by side an ECA is viewed favourably amongst private sector investors.

Third, government-backed development banks such as State Bank of India, the Bank of China and China Construction Bank, BNDES in Brazil, VEB in Russia. All of these banks command substantial financial resources and are in a pivotal position to facilitate project finance deals in their respective countries. Owing to the backing from the state, these development banks also have the highest credit rating within their respective jurisdictions. This gives them the ability to issue ‘benchmark setting’ bonds at competitive rates, which then helps price loans for rest of the market. As intermediaries with a deep pool of global and local competencies, these institutions also act as informal go-betweens linking the host country’s politicians and foreign investors.

The state-development banks are also increasingly complemented with a variety of sovereign wealth funds, and public-private infrastructure funds. The Macquarie-Renaissance infrastructure fund in Russia, for example, has contributions from the two private sponsors, VEB, IFC, EBRD, and a broader set of global investors. Similarly, IDFC or IL&FS are innovative funds in India. The rise of such state-backed development banks and public-private funds is a welcome development that has contributed significantly to increasing EMPF volumes. Furthermore, due to increased involvement of local financial

7 For further discussion and data, see Sheppard, R. (2011) Effectiveness of mulitlaterals. Project Finance International, March 9, Issue 452.


intermediaries, the relative reliance on foreign intermediaries and investors is declining. This too is a welcome development because until recently foreign investors were exposed to several risks, such as the local currency or creeping political expropriation, which they were the inappropriate party to absorb. With greater pools of local capital and expertise, there are greater options to share risks in an appropriate fashion. By the same token, sponsors now have the ability to raise a slice of funds required in local currency terms from the host country’s financial markets. Frontier Asian and African markets ought to particularly take note of these developments in more mature emerging markets.

what Makes Project Finance Particularly Suitable to emerging Markets?

The drivers for interest in non-recourse project finance in EM are manifold but three factors merit particular attention.

First, EM are currently experiencing strong demand for new capital formation (such as for transport and energy infrastructure or natural resource extraction). Currently, more than 20 per cent of global economic activity takes place as projects, and in some emerging economies it exceeds 30 per cent. ‘World Bank (2009) data indicate that 22 per cent of the world’s US$48tr gross domestic product (GDP) is gross capital formation, which is almost entirely project-based. In India it is 34 per cent, and in China it is 45 per cent of GDP’ writes Christophe Bredillet.8

Second, traditional corporate financing channels in many EM remain relatively weak when compared to developed economies. Corporate bond market in India, for example, is only 1 per cent of the country’s GDP. Corporate bond market is 111.8 per cent of the US GDP, for instance, or 42.4 per cent in Japan.9 Part of the weakness of traditional corporate financing options in EM can be attributed to relatively poor corporate governance, information asymmetries, and uncertainty regarding the rights of minority shareholders and creditors.10

Third, project finance structures are more robust in dealing with risks associated with large projects in emerging markets. The risk mitigation role of project finance comes into its own in emerging markets due to the limited operational track record of many of the project sponsors, magnified macroeconomic and contractual risks. The weakness of traditional corporate financing channels in emerging markets in fact turns out to be a blessing in disguise. Due to the rigour of project finance transactions, EM project managers have less leeway to make mistakes. Cost overruns, poor estimates of demand, or other risks can turn a good investment idea into a liability. It is more difficult for investors to scrutinize large investments financed via traditional corporate finance with respect to their investment performance; whereas project finance provides for greater transparency, which is of particular value in emerging markets.

8 Bredillet, C. (2010) Blowing Hot and Cold on Project Management, Project Management Journal 41:3 (2010): 4. Also see, Scranton, P. (2011) Projects as Business History: Surveying the Landscape. Rutgers University.

9 ICMA Centre, 2008. The Development of India’s Corporate Debt Market. http://217.154.230.218/NR/rdonlyres/98998CB3-DAE9-460A-9193-451F6A53FCED/0/IndiaCDM.pdf Accessed 2 June 2011, p. 27.

10 See, for instance Klapper, L. F. and Love, I. 2004. Corporate Governance, investor protection, and performance in emerging markets. Journal of Corporate Finance. Vol. 10(5), 703–728.


Fourth, project finance allows for public and private sector collaboration in innovative ways in emerging markets. For instance, many government programmes in physical or social infrastructure can be implemented via non-recourse techniques. This allows for these programmes to benefit from greater scrutiny of costs and benefits. It also lightens the burden on the balance sheet of the public sector. Since many emerging markets need to accelerate new capital formation, project finance offers a clearer way to prioritize projects with the highest value and hence economic impact.

Concluding Thoughts

Project finance is here to stay as one of the most significant sources of long-dated financing in emerging markets. If the legal and regulatory frameworks in emerging markets keep pace, emerging markets project finance volumes can be expected to grow strongly in coming years, outpacing developed countries. Oil and gas, and petrochemicals, power, and the road and transport sector will likely remain leading sectors. Mining and metals, particularly steel and aluminium, will also remain active areas for project finance. Underpinning the expanding importance of project finance in emerging countries is a critical shift. Instead of a reliance on foreign arrangers, home-grown, and often state-backed, intermediaries such as State Bank of India, Bank of China, China Construction Bank, VEB in Russia, and BNDES in Brazil are assuming a central role in making project finance deals happen. Similarly, domestic institutional investors and banks – and not foreign investors – are becoming the proportionally largest source of capital for many transactions. Foreign sponsors and investors, interested in exposure to emerging market project finance, need to take into account this shifting landscape to capitalize on arising opportunities.

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Principles of Project Finance CH24