Published on 09 Mar 2021.
RAM Ratings today released a criteria paper for the assessment of project-finance transactions with progressive or back-ended equity infusions from their sponsors. Driven by keener competition and less lucrative concession-based projects, there have been more concerted efforts to enhance shareholders’ returns from recent project-finance transactions. Delaying equity injection towards the later stage of project construction is a good example.
Financing structures with deferred equity obligations expose a project to funding uncertainty, potentially resulting in failure to complete and heightening default risk for its lenders. That said, the use of deferred equity does not preclude a project from attaining a strong credit rating.
Our evaluation on deferred equity contribution focuses on the sponsor’s credit strength as well as its willingness and incentive to contribute promptly. The paper also discusses the various forms of contingent financial support that could help the sponsor ensure certainty of funding for the project. In addition, it outlines the minimum required terms and general principles that RAM considers acceptable.
For further details, please refer to Deferred Equity in Project Finance, which is available at www.ram.com.my.
Chong Van Nee, CFA
(603) 3385 2482
(603) 3385 2577
About RAM Rating Services Berhad (RAM Ratings)
Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains.
ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information or statement contained herein, save for any information required to be disclosed by law.
Published by RAM Rating Services Berhad
© Copyright 2021 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.