Thursday, 19 February 2009

Fitch Says Global Crisis to Hamper Infrastructure Plans, Project Finance Sector. Future Rating Actions May Be Under Study

Fitch Ratings said in a report yesterday that the outlook for global infrastructure and project finance sectors and regions is turning grimmer as the global recession ''now appears to be globally synchronised and severe.´´ According to the ratings company, economic uncertainty in the short run now ''points to material longer-term declines in both asset values and credit quality than was predicted in Fitch's first global infrastructure and project finance outlook in March 2008.´´

Fitch's main concern is the reduced availability of credit leading to heightened refinancing risk. One sector we believe will be taken a closer outlook at is large infrastructure programmes in underdeveloped economies -- in the region the plans that stand out as the most ambitious and aggressive are Brazil's and Colombia's. ''Deteriorating operational performance of assets and the volatility of commodity prices have also now moved to the fore of the agency's concerns,´´ said Fitch in its report.

The relative stability of project and infrastructure fundamentals in most countries will weather the impact of the global downturn, which will continue beyond this year. The long-term contractual nature of project finance debt may also provide a cushion, Fitch said.

''Sectors exposed to consumption or discretionary spending will likely be the most vulnerable with regional differences less pronounced due to the global nature of the recession,´´
said Fitch, adding that ''projects not subject to demand or price risk such as public-private partnership (PPP) availability transactions and long-term, contracted projects will likely be more stable.´´

Across sectors and regions, projects with limited leverage, strong covenants and structural protections and strong committed sponsors with long-term strategies are likely to be more resilient than others
. In this case, the rearrangement of project structuring in key projects is already taking place in Colombia. One interesting aspect of this is, in my opinion, the recent decision by the Colombian government and the IFC to split up the ambitious $2.6 billion Ruta del Sol road project into three parts, to overcome funding scarcity. A Colombian executive involved in multiple infrastructure projects said mid- and small-sized projects will have an edge over the larger ones, due to the difficulties stemming from obtaining funding for new projects.

About that, Fitch ''expects that when new funding is available, the terms will be far more stringent and creditor-friendly than was the case in the past few years.´´

1 comment:

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