Project Finance

CHAPTER 5Sources of Financing for Emerging Markets

Designing an effective and sustainable financing plan for a project finance transaction in high-risk emerging markets is critical to the enduring success of the project. Project finance advisors spend considerable time developing and fine-tuning the finance plan along with backup options to achieve the optimal mix of financing sources that aims to deliver the lowest cost debt with minimal execution risk while providing required political risk mitigation and other risk transfer benefits. Depending on the project location, risk appetite among lenders, transaction precedents, and the relative availability or scarcity of loan capital, there are a variety of strategic approaches when developing a financing plan—however, given the bespoke nature of most project deals, they tend to be highly customized. From my own experience, there are a few general rules of thumb that should be followed:

• Engage a financial advisor or an experienced project finance bank to review draft project documents before execution to undertake a sanity check as to the bankability or financeability of the project documents. One the most common mistakes made by project sponsors is to sign project documents before determining if the documents would be bankable and acceptable to lenders. Seeking to re-open project documents after execution can prove difficult and costly as project counterparties will seek other contract concessions in return for modifying the ...