SNC-Lavalin dissects common financing pitfalls

Projects submitted for financing deals are often not appropriately structured for non-recourse project financing, says Umer Ahmad, vice president for investment development at SNC-Lavalin Capital

Umer Ahmad, vice president for investment development at SNC-Lavalin Capital.
Umer Ahmad, vice president for investment development at SNC-Lavalin Capital.

Hiring advisors can help companies ease the process of getting their projects financed, said Umer Ahmad, vice president for investment development at SNC-Lavalin Capital.

Speaking with Construction Week, Ahmad said that there had been many cases where projects being submitted for financing deals are “are not appropriately structured for non-recourse project financing”.

He elaborated: “Typical issues in that regard include no appropriate off-take or off-taker, [as well as] seeking to push as many risks as possible over to the developer or project company, [when] the optimum solution would be to involve placing [the] risks with the parties best [suited] to manage such risks, thereby creating a 'best value for money' situation.”

A value-for-money situation, Ahmad explained, can lead to projects that can be effectively – and privately – financed.

“In many cases, if procurers were to hire appropriate financial, legal, and technical advisors at the outset, these issues could be addressed. This requires a bit of a medium-term perspective, taking into account that money spent on the right advisors ought to give rise to better value by getting projects successfully financed or executed,” he added.

Ahmad noted that the right advisor would, of course, not advance projects through the wrong procurement route, or the wrong commercial or delivery model.

He continued: “Furthermore, some engineering and construction companies do not have access to their own equity finance capability, nor the ability to structure a financing deal and the ability to facilitate or mobilise other investors and debt capital, be it banks or export credit agencies." 

He made a point to stress, however, that there has been a considerable tightening in liquidity, remarking: “On the face of it, project finance debt appears to be readily accessible, but banks are, in fact, increasingly reluctant to lend for longer periods and are looking for much shorter repayment schedules, making financing that much more difficult.

“Another key issue, [but] far less obvious, is that banks are increasingly only making balance sheets available for their ‘relationship’ clients.”

“SNC-Lavalin is very fortunate as we are well-placed in these respects, with our Capital division providing a strong platform for financing activities,” he concluded.

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