Risk Management in project finance : a financier's assessment framework

Abstract

Infrastructure development represents one of the major hindrances to economic growth and social development across all countries worldwide. A one percent increase in GDP is expected in a country with an estimated ten percent increase in infrastructure assets. Private project and structured financing is identified as the most effective tool for the provision of the required infrastructure. The complexity, formidable risks and highly leveraged nature of project and structured financing transactions account for the mismatch between the numbers of infrastructure financing transactions that reach financial close compared to the available pipeline. Increased literature focusing on the public sector procurer and private sector contractor is available in project and structured financing transactions, but scarce research focuses on the risk assessment processes applied by financiers to the due diligence of transactions. In this study, 15 in-depth semi-structured interviews were conducted with financing experts representing a diverse set of expertise with varying levels of experience in different markets. ATLAS.ti was used to analyse, code and identify themes in the data collected. The findings indicate a wide range of risks and scenarios are considered by financiers with the top risks being political or sovereign risk followed by construction risk. From the findings discussed, a financiers generalized risk assessment framework is created that can be applied to a wide range of project financing transactions and markets in context.