How to Prepare Bankable Infrastructure Projects

“To close the infrastructure gap, we have to develop bankable and investment-ready project pipelines”

The Infrastructure gap is not the result of the shortage of capital.

The main reason is the lack of bankable and investment-ready projects.

And, “Lenders” do not make projects bankable, they assess the bankability.

Mostly, the bankability of an Infrastructure Project is determined at the Project Development stage. 

This document presents the steps for preparing bankable infrastructure projects.

1   Detailed Due Diligence 

An effective Due Diligence process comprises several dimensions;

Technical Feasibility
Financial Feasibility
Commercial Viability
Legal Feasibility
Environmental, Social and Governance Assessments

2   Market Sounding

Interests of the potential lenders should be determined/sized.
The feedback provided from the Lenders should be integrated to the Project Preparation Phase.

By the help of Market Sounding risk allocation structure should be shaped in a market-acceptable manner.

Prior to market sounding, it must be considered whether inside information is included.

Clear definition of the purposes of the market sounding should be established.

It must be confirmed that the receiver of the market sounding is the person entrusted by the recipient institution.

The documentation used in market sounding should be kept by the potential lenders for a reasonable time which is determined by the parties.

3   Appropriate Commitments

In the contract, there should be clauses that commits the protection of interests of stakeholders throughout the lifetime of the project. There are two groups of commitments. Financial and non-financial commitments.

Financial Commitments

Minimum Debt Service Coverage Ratio (DSCR)

Interest Coverage Ratios

Prepayment Options

Revenue Guarantees and Availability Payment

Non-Financial Commitments

Step-In Rights

Delays

Cost Overruns

Risk Insurance

4   Well Structured Payment Mechanism

The Payment Mechanism should be well defined to be used as an incentive for the Private Sector to meet the availability and performance standards.

Payment Mechanisms should contain rights to renegotiate tariffs.

The mechanism should contain incentives to deliver the service at the required standards.

The mechanism should contain penalties to prevent the Private Sector from providing low-quality performance.

The mechanism should contain a clear definition of Payers and Payees.

The mechanism should be fair in supporting the long-term partnership.

The mechanism should be transparent and easy to operate.

The mechanism should be classified in terms of availability of service, quality of service and usage of service.

5   Appropriate Risk Mitigants

Construction industry, having a complex structure, is suffering from diversified risks. These risks mostly bring disputes. These risks should be managed by using various risk mitigants such as;

Non-Payment Insurance

Using Multilateral Development Banks’ Risk Mitigation Instruments

Using Export Credit Agencies’ Risk Mitigation Instruments

Offtake Agreements, Security Agreements, Supply Agreements

Integrating effective dispute resolution mechanisms

6   Proper Documentation

Experienced lenders know that successful infrastructure projects reach appropriate project structure via well prepared documentation which also increases project’s bankability. 

If we categorize on the basis of chapters;

First Chapter; Permits for land use, construction, discharge and other legal requirements.

Second Chapter; Feasibility Studies (economic, technical, legal and financial), environmental. social and governance assessments.

Third Chapter; Risk Identification, Risk Mitigation, Risk Allocation, Insurance.

Fourth Chapter; Offtake Agreements, Supply Agreements, Security Agreements.

This information is provided for your convenience and does not constitute any “Legal Advice”. This document is prepared for the general information of the interested persons. This should not be acted upon in any specific situation without appropriate legal advice.

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