Infrastructure debt

About: Infrastructure debt is a research topic. Over the lifetime, 24 publications have been published within this topic receiving 72 citations.

Credit Risk Assessment in Infrastructure Project Finance: Relevance of Credit Ratings

Abstract: Proposed reasons for the mismatch between global long-term finance and private infrastructure investments include, among others, a lack of investable projects, improper risk allocation between private and public sectors, the complex nature of infrastructure projects, unclear credit risk assessments, and a lack of appropriate financing instruments. Inadequate credit information and lack of historical data at infrastructure project level can lead to a credit market failure in infrastructure project finance, resulting in the mispricing of risk and poor capital allocation to infrastructure in the economy. Infrastructure projects are considered risky by rating agencies, given that the cash flows arise from a single asset and the credit ratings for higher non-commercial risks are usually at BBB levels. The rationale for a higher risk grade for infrastructure public–private partnership (PPP) projects is not very clear, however, and given the lack of credible evidence, the financial sector regulators also provide for increased risk weights for infrastructure exposures. This article explores the relevance of credit ratings for infrastructure project finance, examines historical credit default data for infrastructure projects around on credit risk assessment, and assesses the implications for long-term infrastructure financing. The authors find that for the same rating grade, infrastructure debt exhibits lower defaults and lower credit losses relative to corporate debt. This research work could provide directions for policy makers, regulators, and lenders to reduce the use of external credit ratings for guiding investments in infrastructure projects.

Financial Risk Analysis of Infrastructure Debt: The Case of Water and Power Investments

Abstract: Foreword by David Bendel Hertz Preface Introduction Concepts and Procedures Financial Risks in the Construction Period Revenue Risk--Rate and Demand Factors Revenue Risk--The Customer Base Applications Reflections on the Method Appendix Bibliography Index

The impact of socio-political and economic environments on private sector participation in energy infrastructure delivery in Ghana

Abstract: Purpose Investment in power and electricity generation for replacing aging infrastructure with new represents a major challenge for developing countries. This paper therefore aims to examine infrastructure projects’ characteristics and how socio-political and economic investment environments interplay to influence the degree of private sector participation (PPP) in infrastructure delivery in Ghana. Design/methodology/approach Using World Bank Public-private infrastructure advisory facility (PPIAF) and private participation in infrastructure (PPI) project database data from 1994 to 2013, binary logistic regression was used to: determine the probability of a higher or lower degree of PPP; and examine the significance of factors that are determinants of private investments. Findings The findings reveal that the private sector is more likely to invest in a higher degree of PPP infrastructure projects through greenfield and concession vehicles as opposed to management and leasing contracts. From the extant literature, drivers of PPP included infrastructure project characteristics and the social–economic–political health of the host country. However, the significance, direction and magnitude of these drivers vary. Originality/value This paper identifies investment drivers to PPP advisors and project managers and seeks to engender discussion among government policymakers responsible for promoting and managing PPP projects. Direction for future work seeks to explore competitive routes to infrastructure debt and equity finance options that finance energy projects.

Innovative financial intermediation and long term capital pools for infrastructure: A case study of infrastructure debt funds

Abstract: Purpose Developing countries are increasingly looking to private sector investment for infrastructure development. Successful development of private infrastructure projects, however, depends on adequate availability of long-term debt to complement private sector equity. As domestic bond markets in many emerging countries are not very deep, availability of long-term debt funding for infrastructure has been limited. Recently, a new form of financial intermediation has emerged in India with the creation of infrastructure debt funds (IDFs) to create capital pools for long-term debt funding. This paper aims to analyse the effectiveness of IDFs for financing infrastructure projects. Design/methodology/approach This paper uses a case study approach. The case studies were written using both secondary and primary information. Secondary information was obtained from various sources such as policy papers, websites and other published sources. Primary information was obtained from interviews with the top management of three IDFs. Information obtained from multiple sources was triangulated for consistency and correctness. Findings IDFs have emerged as an effective intermediation mechanism for attracting long-term capital by offering a new investment product with appropriate risk-adjusted returns. For the fund seekers, IDFs are able to provide long-term capital at lower rates and higher flexibility. Unlike commercial banks, IDFs are able to add value to the projects apart from funding by periodic monitoring of the projects. Practical implications Creating new forms of financial intermediation can help in reducing the financing gap for infrastructure projects, especially in emerging countries. Originality/value IDFs have been analysed from a perspective of financial intermediation. The effectiveness of IDFs in bridging the funding shortfall has been evaluated from multiple perspectives.

Calibrating credit risk dynamics in private infrastructure debt

Abstract: Recent research has demonstrated that structural credit risk models are capable of explaining the credit risk process for private, illiquid debt. This article extends this literature by proposing a simple and intuitive calibration approach using Bayesian inference to capture the nonlinear dynamics of debt service cover ratios using a new dataset of private cash flows collected by hand for 267 European infrastructure projects spanning 17 years. The combination of a cash flow–driven structural model with observable cash flow data and Bayesian inference enables the measurement of default risk even when few or no defaults have been or can be observed, whereas reduced-form models like the ones used by rating agencies necessarily lead to biased credit risk estimates for private debt.