The Rise, the Fall, and ... : The Emerging Recovery of Project Finance in Transport
Recent developments in emerging financial markets have dramatically changed the appetite for (and terms of) transport infrastructure projects. As a result of defaults in Asia and Russia and devaluations in Asia, Brazil, and Russia, political and cu...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/07/437092/rise-fall-emerging-recovery-project-finance-transport http://hdl.handle.net/10986/19817 |
| Summary: | Recent developments in emerging
financial markets have dramatically changed the appetite for
(and terms of) transport infrastructure projects. As a
result of defaults in Asia and Russia and devaluations in
Asia, Brazil, and Russia, political and currency and
exchange risk premia have increased dramatically. Given
large needs for sovereign debt financing, infrastructure
project finance will be seeking guarantees at the same time
as governments are issuing primary securities. Large
portfolio outflows in emerging market funds mean that the
sources of both equity and debt capital that became
available in the mid-1990s are drying up for all but the
most creditworthy projects. Moreover, real economic effects
from financial events have consequences in the transport
sector, since transport is a derived demand. Any decline in
real economic activity is felt quickly in traffic levels and
revenues. Currency devaluations that help spur exports may
generate higher volumes for seaports and air cargo activity.
These effects vary by sector, especially over the medium to
longer term. Declines in real economic activity make matters
especially difficult for toll roads, as drivers shift to
free alternatives and reduce the number of trips taken. What
does all this mean for project finance in transport? Risks
have increased. Debt finance costs more. The available tenor
of debt instruments has shortened and more equity is
required for projects. The sources and availability of
equity finance have changed. Project finance efforts have
shifted from new projects to the privatization,
rehabilitation, and expansion of existing facilities. And a
"superclass" of sponsors, bankers, and investors
has emerged. Failures and mistakes in project finance deals
in the 1990s were sharp and persistent. But much has been
learned about sound project economics, conservative
financial structures, comprehensive sensitivity analysis,
the effects of macroeconomic factors, and the need for
proper incentives and sound institutional and regulatory arrangements. |
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