Political and sovereign risks have become a major stumbling block to getting infrastructure financing secured, as nationalisation, expropriation and currency inconvertibility become top concerns for lenders, according to Marsh's latest Asia Directors' Series.
According to the report, infrastructure investment in Asia is stalling as the appetite for project finance from European banks diminishes and political and sovereign risk concerns increase, creating a new landscape for project sponsors to navigate.
The dislocation between infrastructure demand in Asia and funding challenges from commercial banks has created an opportunity for a number of government backed development, export-import and multilateral financial institutions to take a lead financing role rather than simply a loan syndicate participant or guarantor.
"The demand for infrastructure development in Asia is getting greater by the day, as the need for power generation, transportation and other basic functions continues to grow consistent with the region's economic growth," said Jason Wells, Managing Director and Marsh's Specialty Leader for Asia. "As European banks continue to reduce their long-term lending activities, project sponsors have been forced to adapt their engagement approach to access funding from development banks, which have different lending criteria to commercial banks."
"In addition to the shifting lending landscape, infrastructure project sponsors are going to greater lengths to demonstrate they are insured for political risks and sovereign non-payment risks to demonstrate project bankability and get these deals over the line."