Asian turmoil hitting project finance debt
Asian turmoil hitting project finance debt
LONDON (Reuters): Standard & Poor's reports this week Asia's
financial problems may have a greater impact on project and
infrastructure debt than other sectors given that these
financings have fueled much of the region's earlier, phenomenal
growth, and now will play a major role in any recovery.
The report discusses the impact of the Asian financial crisis
on infrastructure projects, the trends driving these impacts, and
the lessons that the crisis presents for Asian infrastructure
issuers and project investors going forward. This report appears
in this week's edition of Standard & Poor's CreditWire.
"The current crisis is the first to hit after extensive
placement of infrastructure debt with a wider circle of lenders -
both institutions and syndicated lending banks," says William
Chew, managing director of Standard & Poor's Infrastructure
Finance Group and author of the CreditWeek report.
"While the crisis came as a surprise to many of these
lenders, their continued participation will be critical, not only
for Asian infrastructure debt, but for all infrastructure debt."
Some of the project and infrastructure credits rated by
Standard & Poor's have already been hurt by the crisis. Of the
ratings in the region, six were lowered, and eight are either on
CreditWatch with negative implications or have a negative rating
outlook. This means further downgrades may occur during the next
30 to 60 days.
"Moreover, in this crisis, a few credits face significant
potential for default on timely payment of principal and
interest," Chew says.
"Indonesian power projects, in particular, face a potential
payment default if they do not receive full payments on dollar-
denominated or indexed payments required by the power purchase
contracts backing these projects."
Standard & Poor's stresses that credit prospects will differ
sharply by credit and country context. While the Asian crisis has
harmed some credits more than others, Standard & Poor's has
identified several themes that are integral to understanding the
impact of the crisis on infrastructure projects' credit risk.
These themes include currency risks, political risks, and the
incompatibility of infrastructure debt and so-called "hot money."
"Market fascination with project and infrastructure debt has,
at times, led to an unfortunate combination of hot money seeking
short-term high returns and long-term market-return assets," Chew
says.
"The reason for this has been the assumption, at least during
the upward cycle in lending, that infrastructure assets were so
attractive they would support returns robust enough to permit
early exit through refinancing."