Australia: Project Finance Update: current activity and appetite for risk

Last Updated: 15 June 2011
Article by David Bushby

Video Transcript:
Project Finance Update: current activity and appetite for risk
Angus Foley, Director, Project Finance
Bruce Cooper, Partner, Project Finance
David Bushby, Boardroom Radio

David Bushby: We are speaking with Angus Foley and Bruce Cooper from Clayton Utz to get their perspective on what's driving project finance activity in Australia and in Asia.

Angus, the GFC obviously impacted the level of project finance activity in Australia with lenders more reluctant to fund projects. Are we yet seeing a return to pre-GFC levels?

Angus Foley: Well in Australia the project finance market continued throughout the GFC we are seeing a number of good deals being done and certainly some strong appetite especially by the Australian domestic banks who led a lot of the transactions. Now what we are seeing is a lot of increased competition from foreign lenders, we are seeing changes to the way that deals are being put together, and we are seeing smaller groups of banks that are leading these transactions. We are seeing maybe some underwrites coming back and the next step is really to see the market expand to a range of different deals. Are we there yet? No we're not, but certainly there's an increase in appetite.

David Bushby: And Bruce what do you see is driving project finance activity in Australia?

Bruce Cooper: Well I think it is broadly divided between two separate sectors, really. There is the PPP sector; excluding New South Wales, largely it's a story about water, hospitals and prisons. There's the energy sector, of course, which is massive given Australia's energy export nature. It is all about LNG, it's about coal, coal infrastructure, and it's really then about refinancing of the power generation assets, particularly in Victoria.

David Bushby: So just looking forward 12 months what do you see as being the key variables driving activity levels over that period?

Bruce Cooper Yeah interesting time I think, lots of variables. I think the key one, of course, is going to be the carbon debate and the carbon pricing.

I think that will have a flow off and effect on energy deals in the market now to be financed. I think in addition that will roll into the alternative energy and renewable energy space as well.

 I think there's the availability of equity and sponsorship, particularly on the electricity generation assets and who is going to be there to actually develop those deals.

I can see also a significant impact on the bond market - bonds are coming back. There have been some retail bonds on airports - we'll see whether that will have an impact. I think flowing from that is where the super funds might come in and step up to the equity investment side, developer side, but there's also their role as debt providers perhaps. I think there's also the impact of Chinese money and certainly Chinese Government-assisted money for debt on deals. Yeah as I see it's a real melange of things.

David Bushby: And Angus, given your recent background at Crédit Agricole, what is the commercial appetite for project risk like at the moment?

Angus Foley: Well I think the appetite remains very strong for well structured deals. I think there is particular risk which people will be seeking to mitigate and avoid. Risks around financial markets will be very difficult in the project context, but generally if it's a strong sponsor and if there is a good project rationale I think there will be a strong risk appetite in the market and we'll see the deals being done.

David Bushby: And Bruce just finally of course, you have spent many years practising in Asia. What comparisons would you make between the projects are funded in other jurisdiction versus Australia?

Bruce Cooper: I think there is two things, one is difference and one is the increasing similarity. Firstly, Australian deals, unlike Asian deals, are very heavily taxed structured and therefore from that narrow perspective more sophisticated.

I also see a coalescence of the way in which deals are done. Asia is very much cross-border multi-source financing, increasingly Australia, with foreign investment particularly in the energy space and foreign money. We are seeing a lot more Australian deals approaching the Asian multi-source financings.

David Bushby: Angus, Bruce thank you.

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