Project Finance Advisory

Project Due Diligence

Project finance transactions generally rely upon a high debt-to-equity ratio and are often characterized by limited or non-recourse debt, available outside the project for debt repayment. Therefore, lenders must undertake thorough due diligence to try to assess whether a project is bankable, prior to allocating funds to it. This is particularly true for large-scale projects such as Public-Private Partnerships. For a PPP Project to be deemed bankable, lenders must ascertain whether the Private Partner is capable of servicing the debt raised to execute the PPP Project. For this to be the case, the Debt-Service Coverage Ratio (DSCR) must exceed 1.0 by an acceptable margin. In other words, the Private Partner’s net operating income must be sufficiently high to cover debt service, plus a satisfactory margin to hedge against the risk of variation to cash flows.Lenders will thus focus on the payment process and amortization schedule, while arranging contingent mechanisms to eliminate or mitigate risks that could adversely affect the expected revenue stream. Hence, our due diligence assesses both the technical feasibility and the financial viability of the project, considering all material risks, and how these are managed and allocated between the project stakeholders.

MPG assist clients with the creditworthiness analysis, legal structure of the transaction, credit enhancement structuring and, to avoid conflict of interest, would often assess feasibility studies carried out by third-party consultants.